In years past if you wanted to buy a home a down payment of at least 20% was required. It was simple; if you needed long term financing for the home, the bank required that you have a considerable amount of “skin in the game”. They would finance the difference, but you had to put down the 20%.
The President was Jimmy Carter, the year was 1977, and the Community Reinvestment Act (CRA) was made law by the congress. The CRA required all financial institutions receiving FDIC Insurance be evaluated by Federal banking agencies to determine if these institutions were extending credit to all communities in which they were chartered to do business. This act sought to address discrimination in loans made to individuals and businesses in low and moderate income neighborhoods.
Implementing this law proved challenging and potentially more risky. Lenders knew that credit extended to lesser qualified borrowers had a higher possibility of default. At the same time, creditors realized that extending credit for these loans not only provided much needed capital for some communities, it could also prove to be a source of new profitable business. But lenders had to find a way to minimize or even cover the increased risk on these loans. And thus, Private Mortgage Insurance (MI) was born.
MI is offered by a business providing a financial guaranty to a lender extending mortgage credit to a borrower who has less than 20% to put down on a home purchase. The MI business in effect assumes a portion of the lender’s risk in making that mortgage loan. For sharing the risk, the MI company collects a premium from the lender and the lender typically recovers these costs from the borrower. The risk for the MI company is that the borrower will default on the loan and the insurer having to pay a claim to the lender.
Here’s an example of how it works.
Anita Lohn is buying a home for $150,000 and she has a 10% down payment, or $15,000. Her lender acquires an MI policy on her remaining $135,000 mortgage reducing its exposure to loss from $135,000 to about $101,000. Mortgage Insurance typically covers the top 25% to 30% of the mortgage. In Anita’s case, the MI will absorb approximately 25% of her remaining mortgage.
FHA home loans have their own Federally backed mortgage insurance. These loans benefit home buyers in two ways. First, the required down payment of 3.5% of the purchase price is less than required on conventional loans. And the monthly mortgage insurance premium is also reduced. At the same time, most FHA loans require an up front mortgage insurance premium that the borrower has the option of either paying at the time of closing, or rolling into the total loan amount. As of April 5, 2010 this up front mortgage insurance premium will be 2.25% of the home’s purchase price. Borrower’s should be made aware that FHA mortgage insurance is scheduled to last a minimum of 5 years, regardless if the home owner pays the loan balance down below 80% of the home’s value.
There are two common confusions about MI. First, mortgage insurance is not the same as property and casualty insurance. The property insurance covers the home owner’s risk to fire and other damage to their home. MI provides no such coverage. Second, MI is not the same as mortgage life insurance. This type of insurance covers the balance remaining on the mortgage when the insured home owner dies or becomes disabled. MI covers the lender’s risk, and the home owner gets to pay for it.
Private mortgage insurance makes it possible for families to buy homes with minimal down payments. For first time home buyers, MI helps them clear the hurdle of a large 20% down payment. In most cases the costs associated with MI are tax deductible at least through 2010. Households with adjusted gross income of $100,000 or less may deduct 100% of these costs. It’s best to consult your tax accountant for the full details on deducting MI costs.
Friday, April 2, 2010
Friday, March 26, 2010
V.A. Benefits Extend to Home Ownership
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.
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 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.
Friday, February 26, 2010
Say Good-Buy to Home Buyer Tax Credits
Late in 2009 President Obama signed legislation extending the home buyer tax credit through the first third of 2010. Well, here we are at the end of February and we’re counting down the days until the home buyer tax credit becomes a thing of the past and a topic of regret for many would be home owners.
April 30th is the drop dead deadline for anyone wishing to take advantage of these tax credits to be “under contract” to purchase a home. The term “under contract” literally means that you have a signed purchase agreement with the seller of a home that you want to buy. If you decide not to buy that specific house, not only do you run the risk of losing your earnest money but if you make that decision after April 30th, you will no longer qualify for the tax credit.
Attention. If you have thought about buying your first home, or selling the one you are in and buying a new home, today is the day to take action on those thoughts. This generous legislation has only 62 days remaining before it is gone.
I’ve heard many people speculate, “Oh, the government extended it once, they’ll extend it again, so I’ve got time.” Really? Don’t be so sure about that. I’ve got my finger on the pulse of the housing and home financing market and I’ve heard no such chatter about extending the tax credits.
“Yeah, but when April gets here, the government will see that there are still too many unsold houses and they’ll extend it again.” Again, really? Over the last year and a half, the number of unsold homes in the nation has dropped. According to Harley Wood Market Intelligence, “Existing home inventory levels posted its fifth consecutive month of declines in December. Inventory of existing homes dropped 6.6% percent to a preliminary 3,289,000 units from 3,521,000 units in November. This is the lowest level of existing home inventory units on the market since March 2006. December's inventory level is 11.1% lower than the 3.700 million units of inventory a year ago. Existing home inventory has recorded year-over-year declines for the past seventeen straight months. Recent increases in sales activity due to lower rates and the extended homebuyer tax credit have helped to improve inventory levels.” (February 26, 2010 at www.hwmarketintelligence.com).
So if you’re still wondering if now is the time to shop for a home, let me review the dollars that make sense in this equation.
If you haven’t owned a home in the past three years (that’s 36 consecutive months) you qualify for the maximum tax credit of $8,000. The tax credit can be applied when you file your 2010 taxes or you can file an amended 2009 tax return to include the credit. Either way, that a credit directly applied to the taxes you owe. I don’t know about you, but $8,000 is a lot of money. If you have owned a home and have lived in that home for 5 (five) of the past 8 (eight) years, you qualify for the $6,500 tax credit when purchasing a new home.
There are a couple of stipulations for both of these programs including income limits and purchase prices, but check with the lender of your choice to get the specifics. The most important stipulations are the deadlines. You must be under a binding contract to purchase a home no later than April 30, 2010 and you must close on that transaction no later than June 30, 2010.
The tax credit is a refundable credit which means that it reduces the tax bill you owe for the year you apply it. And if the tax credit reduces your tax bill below zero, you’ll get the difference as a tax refund. You’ll need to file tax form 5405 and include a copy of your settlement statement (a.k.a. HUD-1) from your closing to prove that you actually bought the home.
For parents considering this opportunity for their children, let me close with this information. The minimum age for claiming this tax is 18 years, at the time of closing. Also, anyone claimed as a dependent on someone else’s taxes is ineligible to claim the home buyer tax credit.
April 30th is the drop dead deadline for anyone wishing to take advantage of these tax credits to be “under contract” to purchase a home. The term “under contract” literally means that you have a signed purchase agreement with the seller of a home that you want to buy. If you decide not to buy that specific house, not only do you run the risk of losing your earnest money but if you make that decision after April 30th, you will no longer qualify for the tax credit.
Attention. If you have thought about buying your first home, or selling the one you are in and buying a new home, today is the day to take action on those thoughts. This generous legislation has only 62 days remaining before it is gone.
I’ve heard many people speculate, “Oh, the government extended it once, they’ll extend it again, so I’ve got time.” Really? Don’t be so sure about that. I’ve got my finger on the pulse of the housing and home financing market and I’ve heard no such chatter about extending the tax credits.
“Yeah, but when April gets here, the government will see that there are still too many unsold houses and they’ll extend it again.” Again, really? Over the last year and a half, the number of unsold homes in the nation has dropped. According to Harley Wood Market Intelligence, “Existing home inventory levels posted its fifth consecutive month of declines in December. Inventory of existing homes dropped 6.6% percent to a preliminary 3,289,000 units from 3,521,000 units in November. This is the lowest level of existing home inventory units on the market since March 2006. December's inventory level is 11.1% lower than the 3.700 million units of inventory a year ago. Existing home inventory has recorded year-over-year declines for the past seventeen straight months. Recent increases in sales activity due to lower rates and the extended homebuyer tax credit have helped to improve inventory levels.” (February 26, 2010 at www.hwmarketintelligence.com).
So if you’re still wondering if now is the time to shop for a home, let me review the dollars that make sense in this equation.
If you haven’t owned a home in the past three years (that’s 36 consecutive months) you qualify for the maximum tax credit of $8,000. The tax credit can be applied when you file your 2010 taxes or you can file an amended 2009 tax return to include the credit. Either way, that a credit directly applied to the taxes you owe. I don’t know about you, but $8,000 is a lot of money. If you have owned a home and have lived in that home for 5 (five) of the past 8 (eight) years, you qualify for the $6,500 tax credit when purchasing a new home.
There are a couple of stipulations for both of these programs including income limits and purchase prices, but check with the lender of your choice to get the specifics. The most important stipulations are the deadlines. You must be under a binding contract to purchase a home no later than April 30, 2010 and you must close on that transaction no later than June 30, 2010.
The tax credit is a refundable credit which means that it reduces the tax bill you owe for the year you apply it. And if the tax credit reduces your tax bill below zero, you’ll get the difference as a tax refund. You’ll need to file tax form 5405 and include a copy of your settlement statement (a.k.a. HUD-1) from your closing to prove that you actually bought the home.
For parents considering this opportunity for their children, let me close with this information. The minimum age for claiming this tax is 18 years, at the time of closing. Also, anyone claimed as a dependent on someone else’s taxes is ineligible to claim the home buyer tax credit.
Friday, February 19, 2010
FHA Loans to Cost More
Just a few days ago, the Federal Housing Administration (FHA) changed their rules for borrowers applying for their mortgage backed loans. These rules are in part in response to the growing number of FHA mortgages that are facing foreclosure and in part to crack down on unscrupulous lenders who, as Commissioner David Stevens implies are responsible for the FHA’s increasing defaults and diminishing financial reserves.
In the past few years more and more consumers have turned to the FHA for home financing and the agency has approved too many risky loans so they are now repositioning. Commissioner Stevens told a group of reporters, “Not everybody should own a home.”
A quick insight regarding the FHA. This agency is a government insurance company that backs mortgages and refinance loans for lenders who follow their established guidelines. In 2009 the agency insured about 1.9 million loans which amounts to about 30% market share of the mortgage business. In comparison FHA backed only 1.1 million home loans in 2008.
Recent reports from December 2009 report that the agency is insuring a total of 5.8 million single-family homes. This amounts to over $750 billion in loans. That same report revealed that over 500,000 of these government insured loans were either seriously delinquent or headed for foreclosure.
Okay, here’s the biggest change. Although no specific date has been given, starting sometime this spring borrowers will have to pay more upfront for the Up Front Mortgage Insurance Premium (UFMIP). This change may not become permanent, but at least for a while this premium will increase from the current 1.75% of the loan amount to 2.25%.
FHA charges homeowners this mortgage insurance as an up front fee and as an additional monthly insurance premium added to their payment. As an example on a $250,000 loan, the borrower would pay $4,375, or 1.75% at closing. This amount can be paid by the borrower, or added to the base loan amount effectively increasing the amount the borrower is obligated to repay. With the increase in UFMIP, the same loan would cost the borrower $5,625, and increase of $1,250.
Additionally the FHA has stated that it will ask Congress to raise the ceiling on the amount it can charge borrowers for the annual mortgage insurance premiums that are paid every month. Currently these premiums cannot exceed 0.55% of the loan amount. On that same $250,000 loan, that’s $1,375 a year broken down into monthly payments of $114.58. No estimates of just how high this increase may go have yet been released.
Two other significant changes are also coming. Borrowers with credit scores below 580 will be required to put down a minimum of 10% of the home’s purchase price. While FHA still insures loans with these low credit scores, good luck finding any lender who is willing to touch these loans. There area a few still out there, but most lenders have taken the opposite approach with some requiring borrowers to have credit scores of 640 and higher. Statistics show that most home mortgage defaults are by borrowers with credit scores below 580.
The other significant change is to seller concessions. Currently sellers who really want/need to sell their home are allowed to “help buyers” by conceding up to 6% of the purchase price toward the buyer’s closing costs. They are not allowed to apply any of these concessions toward the borrower’s down payment, but they can, in effect, reduce the home’s price by covering some or all of the buyer’s closing costs. FHA will reduce these “seller concessions” from 6% to 3%.
There are no announced plans to change the current guidelines allowing for family members to “gift” the down payment and closing costs which will most likely make this option more popular with some home buyers. However, before going down this path, check with your lender for the specific requirements and paperwork.
In the past few years more and more consumers have turned to the FHA for home financing and the agency has approved too many risky loans so they are now repositioning. Commissioner Stevens told a group of reporters, “Not everybody should own a home.”
A quick insight regarding the FHA. This agency is a government insurance company that backs mortgages and refinance loans for lenders who follow their established guidelines. In 2009 the agency insured about 1.9 million loans which amounts to about 30% market share of the mortgage business. In comparison FHA backed only 1.1 million home loans in 2008.
Recent reports from December 2009 report that the agency is insuring a total of 5.8 million single-family homes. This amounts to over $750 billion in loans. That same report revealed that over 500,000 of these government insured loans were either seriously delinquent or headed for foreclosure.
Okay, here’s the biggest change. Although no specific date has been given, starting sometime this spring borrowers will have to pay more upfront for the Up Front Mortgage Insurance Premium (UFMIP). This change may not become permanent, but at least for a while this premium will increase from the current 1.75% of the loan amount to 2.25%.
FHA charges homeowners this mortgage insurance as an up front fee and as an additional monthly insurance premium added to their payment. As an example on a $250,000 loan, the borrower would pay $4,375, or 1.75% at closing. This amount can be paid by the borrower, or added to the base loan amount effectively increasing the amount the borrower is obligated to repay. With the increase in UFMIP, the same loan would cost the borrower $5,625, and increase of $1,250.
Additionally the FHA has stated that it will ask Congress to raise the ceiling on the amount it can charge borrowers for the annual mortgage insurance premiums that are paid every month. Currently these premiums cannot exceed 0.55% of the loan amount. On that same $250,000 loan, that’s $1,375 a year broken down into monthly payments of $114.58. No estimates of just how high this increase may go have yet been released.
Two other significant changes are also coming. Borrowers with credit scores below 580 will be required to put down a minimum of 10% of the home’s purchase price. While FHA still insures loans with these low credit scores, good luck finding any lender who is willing to touch these loans. There area a few still out there, but most lenders have taken the opposite approach with some requiring borrowers to have credit scores of 640 and higher. Statistics show that most home mortgage defaults are by borrowers with credit scores below 580.
The other significant change is to seller concessions. Currently sellers who really want/need to sell their home are allowed to “help buyers” by conceding up to 6% of the purchase price toward the buyer’s closing costs. They are not allowed to apply any of these concessions toward the borrower’s down payment, but they can, in effect, reduce the home’s price by covering some or all of the buyer’s closing costs. FHA will reduce these “seller concessions” from 6% to 3%.
There are no announced plans to change the current guidelines allowing for family members to “gift” the down payment and closing costs which will most likely make this option more popular with some home buyers. However, before going down this path, check with your lender for the specific requirements and paperwork.
Friday, February 12, 2010
Home Buying Season Secrets
Wasn’t it just the other day when that large furry brown member of the rodent family emerged from his home in Pennsylvania and saw his shadow, thus guaranteeing us another six weeks of winter? Well all I have to say about that is BAH!! Regardless of what a celebrated marmot says I say winter may last another six weeks, but I believe the temperature in the OKC metro housing market is about to warm up.
I share an office with realtors at Metro First Realty in Oklahoma City. There are about 140 realtors working out of that office and while none are bragging about having too much business, I do hear conversations that their phones are beginning to ring with people making inquiries about homes.
So call me an optimist or say I’m delusional, but I’m writing this article to share with you some secrets that just might come in handy should you find yourself in the market to buy or sell a home during the upcoming home buying season.
Buyers remain the boss. Few of us know someone who recently put their home on the market and watched it sell within a few weeks. Most of us know the family who has had their home on the market for months with little activity. My own parents listed their home for sale in northwest Oklahoma City and showed it only twice in twelve months. Home sellers need home buyers, and home buyers are playing hard to get.
Weather the perfect storm – low rates, dropping prices and tax credits. Yes now is a great time to buy a home…if you have three things. Steady employment, at least a 3.5% down payment and good credit. If you have these things, then you can take advantage of rates in the low 5% range, seller’s willing to negotiate on price and federal tax credits when you file your 2010 taxes.
Prepare for credit shock. I still receive calls about once or twice a month from someone who is self-employed wanting to know if they can still get a home loan based on their credit score without having to prove income. No, you can’t. A lot of lenders are even beginning to raise their minimum credit scores for the “easy to qualify for” FHA mortgages. Very few lenders (present company included) still offer FHA loans with a 620 FICO. Most have raised their minimum scores to 640 or higher.
Think long term. “What if I buy a home and the value continues to fall?” Fortunate for home owners here in the OKC metro, housing values have grown over the past twenty years at a modest 4% to 5% per year. Other markets around the country experienced exploding home values in the double digits. And now these markets are reaping the fallout from overinflating their home values. Our economy is cyclical and what goes down, will also go back up.
Timing the market. Investors try various strategies every day to buy stock at it’s absolute lowest point so they can take advantage of it’s rise. Home buyers try and apply the same strategy. The problem is most of the time there’s plenty of a particular stock to go around even if other investors want to buy the same stock. But when you find a home that meets your needs and fits your budget, the stock strategy of timing the market may not be so smart. There are a limited number of houses that truly meet your criteria, but there are other buyers out there who share your buying position and are probably looking for the house you just found.
Go to the concession window. Sellers want to sell their homes. In some cases, they need to sell their homes. Because of this need, many sellers are willing to “chip in” to pay for some or all of a buyer’s closing costs. FHA still allows for sellers to contribute at least 3% of the purchase price toward the borrower’s closing costs.
Foreclosure properties can be a good buying option. But they can also present unique problems inexperienced buyers should be aware of. If you’re interested in buying a foreclosed property, my best advise is to work with an agent experienced in these types of sales. Their advice and their experience will prove invaluable to helping you pick the right property and avoid buying a lemon.
I share an office with realtors at Metro First Realty in Oklahoma City. There are about 140 realtors working out of that office and while none are bragging about having too much business, I do hear conversations that their phones are beginning to ring with people making inquiries about homes.
So call me an optimist or say I’m delusional, but I’m writing this article to share with you some secrets that just might come in handy should you find yourself in the market to buy or sell a home during the upcoming home buying season.
Buyers remain the boss. Few of us know someone who recently put their home on the market and watched it sell within a few weeks. Most of us know the family who has had their home on the market for months with little activity. My own parents listed their home for sale in northwest Oklahoma City and showed it only twice in twelve months. Home sellers need home buyers, and home buyers are playing hard to get.
Weather the perfect storm – low rates, dropping prices and tax credits. Yes now is a great time to buy a home…if you have three things. Steady employment, at least a 3.5% down payment and good credit. If you have these things, then you can take advantage of rates in the low 5% range, seller’s willing to negotiate on price and federal tax credits when you file your 2010 taxes.
Prepare for credit shock. I still receive calls about once or twice a month from someone who is self-employed wanting to know if they can still get a home loan based on their credit score without having to prove income. No, you can’t. A lot of lenders are even beginning to raise their minimum credit scores for the “easy to qualify for” FHA mortgages. Very few lenders (present company included) still offer FHA loans with a 620 FICO. Most have raised their minimum scores to 640 or higher.
Think long term. “What if I buy a home and the value continues to fall?” Fortunate for home owners here in the OKC metro, housing values have grown over the past twenty years at a modest 4% to 5% per year. Other markets around the country experienced exploding home values in the double digits. And now these markets are reaping the fallout from overinflating their home values. Our economy is cyclical and what goes down, will also go back up.
Timing the market. Investors try various strategies every day to buy stock at it’s absolute lowest point so they can take advantage of it’s rise. Home buyers try and apply the same strategy. The problem is most of the time there’s plenty of a particular stock to go around even if other investors want to buy the same stock. But when you find a home that meets your needs and fits your budget, the stock strategy of timing the market may not be so smart. There are a limited number of houses that truly meet your criteria, but there are other buyers out there who share your buying position and are probably looking for the house you just found.
Go to the concession window. Sellers want to sell their homes. In some cases, they need to sell their homes. Because of this need, many sellers are willing to “chip in” to pay for some or all of a buyer’s closing costs. FHA still allows for sellers to contribute at least 3% of the purchase price toward the borrower’s closing costs.
Foreclosure properties can be a good buying option. But they can also present unique problems inexperienced buyers should be aware of. If you’re interested in buying a foreclosed property, my best advise is to work with an agent experienced in these types of sales. Their advice and their experience will prove invaluable to helping you pick the right property and avoid buying a lemon.
Thursday, February 4, 2010
Sell Your Home in Half the Time
Freeze frame on our nation’s economy. If no new houses were built, there are enough unsold houses to satisfy the needs of the majority of buyers for about nine months. In other words, if no new homes were built it would still take nine months to sell all the houses that are available for sale today.
According to Ziprealty.com one of the nation’s websites that track such figures, the month of January marked the first month in the past 18 months when the number of homes listed on the nation’s MLS totaled more than the month before. In fact January saw a 2.9% increase in available homes in the 27 major U.S. housing markets used to measure these trends.
And to top it off, they’re still building houses in my neighborhood. In fact workers just studded in walls and rafters this week on a new home being built on the lot adjacent to mine. Nation wide, 2010 new housing starts are projected to be down about half of their recent high of 1100 per month in late 2007. This means that not only are there more available homes than there are buyers for several months to come, new home builders are starting over 500 more new homes to add to the already glutted inventory.
Gloom, despair and agony on everyone… Right? Nope! I met someone this week with a track record to back up her claims to sell your home in half the time other Realtors take. How does she do it? Well I asked her to share some of her secrets and she didn’t even flinch. Like she didn’t care if other realtors (and even those folks who want to sell their homes without a realtor) knew how she did it.
“I sell my customer’s homes faster than other Realtors because of a few tricks of the trade, but really it boils down to the fact that I work harder than most other Realtors” Melodee said. By the way, her name is Melodee Dailey with Coldwell Banker Twin Rivers Real Estate, Inc. (melodee.dailey@coldwellbanker.com) So here is how she does it.
Trust. The seller has to know that they can trust that their Realtor will do what they say they will and actually do more than they say the will in order to sell their house. Melodee told me that in a typical week she attends at least 4 events that allow her to network with other business people and potential buyers. This week she’s crammed 7 such meetings into her schedule because next week she’s going on vacation. “My customers know how busy I am doing everything possible to sell their home in the quickest possible time. That’s why when I make recommendations of a few things they need to do to make their house stand out in the crowd, they’re receptive and in most cases do what I suggest” Dailey said.
Staging. Most sellers live in their home and have become accustomed to the way it “feels”. But a good realtor sees the potential in every home they list and know how to make that home look and “feel” the best it possibly can. “That’s why I have a full-time home stager working for me” said Dailey. “I can see the potential and I can sell that potential to prospective buyers; that’s my specialty. But my stager knows how to stage a home better than I do. We each use our strengths to do what the seller expects us to do…sell their house.”
Pictures. It’s the difference between the snapshots I would take at a family picnic and the portrait the professional took of my daughter at her wedding. The pictures used to present a home to potential buyers make a huge difference in whether or not the buyers actually decide to put that home on their list to see. “Again, I know how to spot a home’s potential and I know how to get that home in front of potential buyer’s eyes, but I’m not a professional photographer, that’s why I also have a full-time professional photographer who knows how to capture a buyer’s attention so they will put that home on their ‘must see’ list of homes” Dailey emphasized.
Internet. National statistics reveal that 86% of home buyers decide which homes to consider after first previewing them on the Internet. Dailey continued, “Home buyers use a variety of websites to preview potential homes, so it is imperative that a listing Realtor build a large base of websites on which to market each of their listings. And then they have to use these sights to aggressively sell their clients house”
According to Ziprealty.com one of the nation’s websites that track such figures, the month of January marked the first month in the past 18 months when the number of homes listed on the nation’s MLS totaled more than the month before. In fact January saw a 2.9% increase in available homes in the 27 major U.S. housing markets used to measure these trends.
And to top it off, they’re still building houses in my neighborhood. In fact workers just studded in walls and rafters this week on a new home being built on the lot adjacent to mine. Nation wide, 2010 new housing starts are projected to be down about half of their recent high of 1100 per month in late 2007. This means that not only are there more available homes than there are buyers for several months to come, new home builders are starting over 500 more new homes to add to the already glutted inventory.
Gloom, despair and agony on everyone… Right? Nope! I met someone this week with a track record to back up her claims to sell your home in half the time other Realtors take. How does she do it? Well I asked her to share some of her secrets and she didn’t even flinch. Like she didn’t care if other realtors (and even those folks who want to sell their homes without a realtor) knew how she did it.
“I sell my customer’s homes faster than other Realtors because of a few tricks of the trade, but really it boils down to the fact that I work harder than most other Realtors” Melodee said. By the way, her name is Melodee Dailey with Coldwell Banker Twin Rivers Real Estate, Inc. (melodee.dailey@coldwellbanker.com) So here is how she does it.
Trust. The seller has to know that they can trust that their Realtor will do what they say they will and actually do more than they say the will in order to sell their house. Melodee told me that in a typical week she attends at least 4 events that allow her to network with other business people and potential buyers. This week she’s crammed 7 such meetings into her schedule because next week she’s going on vacation. “My customers know how busy I am doing everything possible to sell their home in the quickest possible time. That’s why when I make recommendations of a few things they need to do to make their house stand out in the crowd, they’re receptive and in most cases do what I suggest” Dailey said.
Staging. Most sellers live in their home and have become accustomed to the way it “feels”. But a good realtor sees the potential in every home they list and know how to make that home look and “feel” the best it possibly can. “That’s why I have a full-time home stager working for me” said Dailey. “I can see the potential and I can sell that potential to prospective buyers; that’s my specialty. But my stager knows how to stage a home better than I do. We each use our strengths to do what the seller expects us to do…sell their house.”
Pictures. It’s the difference between the snapshots I would take at a family picnic and the portrait the professional took of my daughter at her wedding. The pictures used to present a home to potential buyers make a huge difference in whether or not the buyers actually decide to put that home on their list to see. “Again, I know how to spot a home’s potential and I know how to get that home in front of potential buyer’s eyes, but I’m not a professional photographer, that’s why I also have a full-time professional photographer who knows how to capture a buyer’s attention so they will put that home on their ‘must see’ list of homes” Dailey emphasized.
Internet. National statistics reveal that 86% of home buyers decide which homes to consider after first previewing them on the Internet. Dailey continued, “Home buyers use a variety of websites to preview potential homes, so it is imperative that a listing Realtor build a large base of websites on which to market each of their listings. And then they have to use these sights to aggressively sell their clients house”
Wednesday, January 27, 2010
7 Ways to Lose a Buyer
Way back in the olden days…way back in 2007, homes all across the metro area were selling in a matter of days. And sometimes a home had multiple buyers driving the purchase price higher than what the sellers were asking.
Today this seldom happens because there are so many homes available for purchase buyers can find just about anything they want at a price they are willing to pay. The market changed when the housing bubble burst. Almost immediately, foreclosures diluted home values in neighborhoods throughout the city. And buyers waited; like vultures waiting for the wounded animal to die, they waited to purchase watching to see just how low home prices would go. And some are still waiting.
Many of the realtors I talk with tell horror stories of buyers looking at thirty and forty properties and still not making a serious offer. When they ask what their customers are looking for, they get the response, “we’re waiting for the price to drop”. And for the sellers whose homes remain unsold on the market month after month, keeping the house in “showroom condition” becomes impossible.
So what’s a seller to do? My network of realtors offers the following 8 ways sellers can lose a buyer. I offer these to you in hopes that you will not repeat the same mistakes that have cost many a seller a closed contract.
Unappealing Curbside View. Think of this as your home’s handshake. The way your home looks when potential buyers drive up makes an impression that sticks with the buyers. Trimming all trees and bushes as well as edging the yard and putting fresh mulch in the beds is a must. Power washing the exterior to remove wasp and mud dauber nests is an absolute must.
Clutter with chaos. Most people looking to buy a home have outgrown the one they are in. This usually means their home is cluttered and chaotic. That’s why closets should be only half filled and nothing should be on the floor. The rest of the house should be dressed according to the rule of three. Kitchen – no more than three appliances on the counter top. Bookshelves – one third books, another third pictures and vases, and the final third empty.
Dated fixtures. Most sellers take their refrigerators and washer and dryers but leave the oven and range. These fixtures aren’t cheap, but if they are too outdated, they can be a definite cause your buyer’s eyes to roll. Those old ceiling fans may still work, but are they older than your average buyer? If so, it would be a good idea to replace them.
Wallpaper. Grandma may have had it, and you may have grown up with it in your room. Okay, you may even like it yourself. But it’s a definite fashion faux pas for today’s buyers.
Acoustic ceiling. It really doesn’t matter if the ceiling is that old acoustic ceiling tile or the blown on glitter globs of popcorn, it puts off buyers. There are other homes as nice as yours and priced like yours but look better than yours because they took the time to remove the old acoustic ceiling.
Honest dishonesty. How many times have you read something like this? “Nestled in a quiet corner of the neighborhood, the rustic romance of this home makes it a stand out from other area homes for sale. Seller offers liberal allowance for buyer’s choice updates.” What all this means is that this home sits in a cul-de-sac sandwiched between two other homes leaving a very small pie shaped front yard. It’s in a quiet part of the neighborhood because the houses on either side of it have been foreclosed and vacant for nine months. It’s described as rustic, which really should have been rusting. Honest dishonesty only puts off serious buyers. Just be truthful.
Busy body seller. Walk in to just about any large furniture store in the city and within seconds you’ll be met by a sales person who won’t leave you alone. Tell them you’re just looking and they’ll ask thirty questions about size, shape and color. When people come to look at your home, don’t be one of those sales people. In fact, it’s best to leave the house.
Today this seldom happens because there are so many homes available for purchase buyers can find just about anything they want at a price they are willing to pay. The market changed when the housing bubble burst. Almost immediately, foreclosures diluted home values in neighborhoods throughout the city. And buyers waited; like vultures waiting for the wounded animal to die, they waited to purchase watching to see just how low home prices would go. And some are still waiting.
Many of the realtors I talk with tell horror stories of buyers looking at thirty and forty properties and still not making a serious offer. When they ask what their customers are looking for, they get the response, “we’re waiting for the price to drop”. And for the sellers whose homes remain unsold on the market month after month, keeping the house in “showroom condition” becomes impossible.
So what’s a seller to do? My network of realtors offers the following 8 ways sellers can lose a buyer. I offer these to you in hopes that you will not repeat the same mistakes that have cost many a seller a closed contract.
Unappealing Curbside View. Think of this as your home’s handshake. The way your home looks when potential buyers drive up makes an impression that sticks with the buyers. Trimming all trees and bushes as well as edging the yard and putting fresh mulch in the beds is a must. Power washing the exterior to remove wasp and mud dauber nests is an absolute must.
Clutter with chaos. Most people looking to buy a home have outgrown the one they are in. This usually means their home is cluttered and chaotic. That’s why closets should be only half filled and nothing should be on the floor. The rest of the house should be dressed according to the rule of three. Kitchen – no more than three appliances on the counter top. Bookshelves – one third books, another third pictures and vases, and the final third empty.
Dated fixtures. Most sellers take their refrigerators and washer and dryers but leave the oven and range. These fixtures aren’t cheap, but if they are too outdated, they can be a definite cause your buyer’s eyes to roll. Those old ceiling fans may still work, but are they older than your average buyer? If so, it would be a good idea to replace them.
Wallpaper. Grandma may have had it, and you may have grown up with it in your room. Okay, you may even like it yourself. But it’s a definite fashion faux pas for today’s buyers.
Acoustic ceiling. It really doesn’t matter if the ceiling is that old acoustic ceiling tile or the blown on glitter globs of popcorn, it puts off buyers. There are other homes as nice as yours and priced like yours but look better than yours because they took the time to remove the old acoustic ceiling.
Honest dishonesty. How many times have you read something like this? “Nestled in a quiet corner of the neighborhood, the rustic romance of this home makes it a stand out from other area homes for sale. Seller offers liberal allowance for buyer’s choice updates.” What all this means is that this home sits in a cul-de-sac sandwiched between two other homes leaving a very small pie shaped front yard. It’s in a quiet part of the neighborhood because the houses on either side of it have been foreclosed and vacant for nine months. It’s described as rustic, which really should have been rusting. Honest dishonesty only puts off serious buyers. Just be truthful.
Busy body seller. Walk in to just about any large furniture store in the city and within seconds you’ll be met by a sales person who won’t leave you alone. Tell them you’re just looking and they’ll ask thirty questions about size, shape and color. When people come to look at your home, don’t be one of those sales people. In fact, it’s best to leave the house.
Friday, January 22, 2010
Mortgage Expectations for 2010
The questions on most home owners minds are; “When will we see an end to the current housing crisis?” “How much longer will lenders remain skeptical?” “What are interest rates going to do?” “Is the housing market going to show signs of loosing up this year?” “Even with the Federal tax credit, is it time to buy a new home?”
We’ve been in our current housing slump for about three years now; at least we’ve been hearing about it in the news for at least that long. Recently there have been small but not insignificant signs that the real estate market is stabilizing. The number of home sales is up, housing inventories are showing signs of decline and prices of homes are beginning to plateau.
Stiffer Standards. There’s no doubting that lenders have tightened their qualification standards over the past two years. And for good reason. Their “too loose” lending standards in part fueled the inflated housing bubble. Then as the bubble popped and banks began realizing huge losses they began tightening lending standards on all borrowers. Now with unemployment at historic highs along with mortgage delinquencies, don’t expect lender’s to relax their guidelines, at least until after 2010.
FICO Scores. That’s your credit score. Up until two years ago all that was needed to get a great interest rate was a FICO score of 640 or better. Now that number has jumped to 720 and higher. I still regularly talk with people who want a “stated income mortgage”. Ain’t no such animal any more. Even with credit scores in the 800’s, you’ll still have to verify every dollar of your income and assets in order to qualify for a home loan. Everyone should monitor their credit regularly to check for errors. The Fair and Accurate Credit Transactions Act entitles consumers to one free credit report from each of the three major credit report bureaus each year. These bureaus are known as, Transunion, Experian and Equifax, and the reports are available at: www.annualcreditreport.com.
Higher Down Payment. Part of the reason we are in our current housing troubles is because lenders allowed borrowers to purchase homes with no down payment. With no “skin in the game” it was much easier for many home owners to walk away from their home mortgage obligations when finances got tight. On this subject also, I still regularly field questions on how people can get into a home with no money down. Minimum down payments are 3.5% with loans backed by the Federal Housing Administration (FHA). And conforming lenders are requiring down payments of up to 20%. If lenders become convinced that home prices are back on a permanent rise, they could lower down payment standards, but I wouldn’t look for this to happen anytime in 2010.
Changes in FHA. Because conventional loan standards have tightened so rapidly, borrowers by the thousands have flocked to FHA loans. Approximately 29% of our nation’s home loans are FHA loans. That’s up from about 3% (that’s right, three-percent) in 2006. And now, even the FHA is beginning to tighten their requirements. Over the past year minimum down payments have increased to 3.5% and the required up front mortgage insurance has increased from 1.5% of the loan amount to 1.75%. A recent announcement states that this percentage will soon increase to 2.25%.
Rising Rates. Just about all leading advisors to the housing industry believe that mortgage interest rates will without doubt trend upward this year. Last year the Federal Reserve announced plans to purchase assist Fannie Mae and Freddie Mac by purchasing some of their debt and mortgage-backed securities. After these actions, home mortgage interest rates fell to historic lows. Keep in mind that this plan by the Fed is scheduled to expire at the end of the first quarter of this year and unless private demand for mortgage-backed securities strengthens, rates will rise. The present expiration date on the Fed’s current action is an extension and should the market require continued Fed involvement to keep rates low and spur on further recovery, another extension could be forthcoming. No promises…just a thought.
We’ve been in our current housing slump for about three years now; at least we’ve been hearing about it in the news for at least that long. Recently there have been small but not insignificant signs that the real estate market is stabilizing. The number of home sales is up, housing inventories are showing signs of decline and prices of homes are beginning to plateau.
Stiffer Standards. There’s no doubting that lenders have tightened their qualification standards over the past two years. And for good reason. Their “too loose” lending standards in part fueled the inflated housing bubble. Then as the bubble popped and banks began realizing huge losses they began tightening lending standards on all borrowers. Now with unemployment at historic highs along with mortgage delinquencies, don’t expect lender’s to relax their guidelines, at least until after 2010.
FICO Scores. That’s your credit score. Up until two years ago all that was needed to get a great interest rate was a FICO score of 640 or better. Now that number has jumped to 720 and higher. I still regularly talk with people who want a “stated income mortgage”. Ain’t no such animal any more. Even with credit scores in the 800’s, you’ll still have to verify every dollar of your income and assets in order to qualify for a home loan. Everyone should monitor their credit regularly to check for errors. The Fair and Accurate Credit Transactions Act entitles consumers to one free credit report from each of the three major credit report bureaus each year. These bureaus are known as, Transunion, Experian and Equifax, and the reports are available at: www.annualcreditreport.com.
Higher Down Payment. Part of the reason we are in our current housing troubles is because lenders allowed borrowers to purchase homes with no down payment. With no “skin in the game” it was much easier for many home owners to walk away from their home mortgage obligations when finances got tight. On this subject also, I still regularly field questions on how people can get into a home with no money down. Minimum down payments are 3.5% with loans backed by the Federal Housing Administration (FHA). And conforming lenders are requiring down payments of up to 20%. If lenders become convinced that home prices are back on a permanent rise, they could lower down payment standards, but I wouldn’t look for this to happen anytime in 2010.
Changes in FHA. Because conventional loan standards have tightened so rapidly, borrowers by the thousands have flocked to FHA loans. Approximately 29% of our nation’s home loans are FHA loans. That’s up from about 3% (that’s right, three-percent) in 2006. And now, even the FHA is beginning to tighten their requirements. Over the past year minimum down payments have increased to 3.5% and the required up front mortgage insurance has increased from 1.5% of the loan amount to 1.75%. A recent announcement states that this percentage will soon increase to 2.25%.
Rising Rates. Just about all leading advisors to the housing industry believe that mortgage interest rates will without doubt trend upward this year. Last year the Federal Reserve announced plans to purchase assist Fannie Mae and Freddie Mac by purchasing some of their debt and mortgage-backed securities. After these actions, home mortgage interest rates fell to historic lows. Keep in mind that this plan by the Fed is scheduled to expire at the end of the first quarter of this year and unless private demand for mortgage-backed securities strengthens, rates will rise. The present expiration date on the Fed’s current action is an extension and should the market require continued Fed involvement to keep rates low and spur on further recovery, another extension could be forthcoming. No promises…just a thought.
Thursday, January 14, 2010
RESPA Rules Require New Forms
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.
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.
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.
Wednesday, December 30, 2009
Lock or Float Your Interest Rate?
When it comes to guessing the best time to lock in a mortgage interest rate, I’ve seen easier games on the carnival midway. Hitting everything just right so as to capitalize on the best rates and costs is not impossible, but it can be quite daunting in today’s volatile market.
Before the recent downturn in the real estate industry, the movement of mortgage rates was relatively easy to predict. But now the key indicators that once predicted the movement of mortgage interest rates are not as closely linked to the actual rates on any given day. Making it further difficult to predict, rates may fluctuate by 25 or 30 basis points in a few hours or a few days. Even the experts confess to having greater difficulty giving advance notice of rate movements.
Interest rates are usually locked for 30 to 45 days, depending on the time stipulated in the purchase contract. At the same time, rate locks are available for 60 and 90 days while some lenders offer locks up to 180 days. Borrowers can expect to pay a premium for longer lock periods, and these prices can very widely between lenders. Most lenders require that the loan be locked between 7 and 15 days before closing.
First, Find a Home. Most lenders require an address to lock a loan. This is one way the lender knows the borrower is serious about actually purchasing their financing. When the rate is locked, the lender is committing their money to you at that price. Once that amount of money is committed, they can’t use it to secure someone else’s financing. So, lenders take rate locks very seriously.
Second, Track the Time. The average purchase contract is written for 30 days. But if your situation is different, you need to make certain that your rate lock won’t expire before your scheduled closing date. In fact it’s a good idea to check with your lender the seven days prior to closing just to make sure your loan will close before the rate expires. If there is a question about this, request a rate extension.
Third, Bank the Benefit and Sever any Surprises. Most borrowers find a rate they can live with and lock it in. This way, they know what their monthly payment will be and can budget for it. Further, they simplify their home buying experience by limiting the number of distractions they have while waiting to close.
There are still some buyers who can’t resist the urge to “play the market” and they will choose not to lock their rate but instead “float” it hoping for a market improvement and a lower rate. What they hope for is a dramatically lower rate. In the best real life scenario what they actually receive is a slightly lower rate, perhaps as much as .125%. Unfortunately in many cases the rate actually increases by the same 1/8th of a percentage point. You win some, you lose some. This is why most borrowers choose to lock their rate instead of float.
Having said all of this, some lenders offer a “float down” option for their interest rates. This option (usually accompanied by a fee…of course) allows the borrower to re-lock at a lower rate, should rates drop by a specified amount during the time their loan is in processing.
Fourth, Follow the Fed. Earlier this year the Federal Reserve announced plans to buy up more than $1 Trillion in mortgage-backed securities. The reason this is so important is because interest rates on fixed-rate mortgages are determined by mortgage-backed securities that are traded on the bond market. When demand for these instruments goes up, fixed interest rates drop, and vice-versa. This promise by the Fed has helped keep rates lower throughout the last few months of the year.
It is not certain what the Fed will do after the first of the New Year. What could happen (emphasis on the could) is that the market for mortgage backed securities could shrink a bit driving down the demand and causing rates to rise.
Before the recent downturn in the real estate industry, the movement of mortgage rates was relatively easy to predict. But now the key indicators that once predicted the movement of mortgage interest rates are not as closely linked to the actual rates on any given day. Making it further difficult to predict, rates may fluctuate by 25 or 30 basis points in a few hours or a few days. Even the experts confess to having greater difficulty giving advance notice of rate movements.
Interest rates are usually locked for 30 to 45 days, depending on the time stipulated in the purchase contract. At the same time, rate locks are available for 60 and 90 days while some lenders offer locks up to 180 days. Borrowers can expect to pay a premium for longer lock periods, and these prices can very widely between lenders. Most lenders require that the loan be locked between 7 and 15 days before closing.
First, Find a Home. Most lenders require an address to lock a loan. This is one way the lender knows the borrower is serious about actually purchasing their financing. When the rate is locked, the lender is committing their money to you at that price. Once that amount of money is committed, they can’t use it to secure someone else’s financing. So, lenders take rate locks very seriously.
Second, Track the Time. The average purchase contract is written for 30 days. But if your situation is different, you need to make certain that your rate lock won’t expire before your scheduled closing date. In fact it’s a good idea to check with your lender the seven days prior to closing just to make sure your loan will close before the rate expires. If there is a question about this, request a rate extension.
Third, Bank the Benefit and Sever any Surprises. Most borrowers find a rate they can live with and lock it in. This way, they know what their monthly payment will be and can budget for it. Further, they simplify their home buying experience by limiting the number of distractions they have while waiting to close.
There are still some buyers who can’t resist the urge to “play the market” and they will choose not to lock their rate but instead “float” it hoping for a market improvement and a lower rate. What they hope for is a dramatically lower rate. In the best real life scenario what they actually receive is a slightly lower rate, perhaps as much as .125%. Unfortunately in many cases the rate actually increases by the same 1/8th of a percentage point. You win some, you lose some. This is why most borrowers choose to lock their rate instead of float.
Having said all of this, some lenders offer a “float down” option for their interest rates. This option (usually accompanied by a fee…of course) allows the borrower to re-lock at a lower rate, should rates drop by a specified amount during the time their loan is in processing.
Fourth, Follow the Fed. Earlier this year the Federal Reserve announced plans to buy up more than $1 Trillion in mortgage-backed securities. The reason this is so important is because interest rates on fixed-rate mortgages are determined by mortgage-backed securities that are traded on the bond market. When demand for these instruments goes up, fixed interest rates drop, and vice-versa. This promise by the Fed has helped keep rates lower throughout the last few months of the year.
It is not certain what the Fed will do after the first of the New Year. What could happen (emphasis on the could) is that the market for mortgage backed securities could shrink a bit driving down the demand and causing rates to rise.
Tuesday, December 22, 2009
HUD Provides Transparency and Clarity for Borrowers
January 1, 2010 is more than the first day of the second decade of the 21st century, it is also the day new guidelines from the Department of Housing and Urban Development (HUD) go into effect. And with these guidelines it is hoped a new day of increased transparency and improved clarity for borrowers seeking their best options for home financing.
Until now many of the fees charged by lenders, title companies and third party providers could undergo dramatic changes between the time the loan was originated and the time it closed. These changes could amount to hundreds of dollars in additional money being charged to the borrower. Some of these increases were unavoidable. In most cases not only were they avoidable, but one set of fees was quoted to get the business while the actual fees were withheld until closing.
In 2005 HUD held a series of roundtable discussions with industry representatives, trade associations and consumer groups to discuss the impacts of these practices. After two and one half years, HUD its proposed rule changes on March 14, 2008. Since then HUD has received over 12,000 public comments in response to these proposed rules.
The hope of HUD is that these new rules will help consumers shop for the loan that is best for their needs. HUD believes that shopping leads to greater competition and that increased competition leads to lower prices.
Because loan fees have been at the center of this controversy, HUD has attempted to simplify the shopping process for borrowers. By dividing all loan fees into three categories it is hoped that borrowers will be able to make more wise decisions when making their choice for home financing.
Category One: These Fees Cannot Increase at Settlement
The lenders origination charge – this is the up front cost the lender charges to provide their services. In the past, this fee has seen dramatic increases, sometimes based on the difficulty of processing the borrower’s file.
The credit or charge (points) for the specific interest rate after it is locked – many lenders have made it their practice to “float” the interest rate until pricing improves and the yield they make increases. This spread is called the yield spread, or YSP. If pricing is worse, the points charged for the “promised” rate have historically increased. Mortgage Brokers will no longer be able to pass on an increased fee but instead will be held accountable to own up to their own risk when floating an interest rate.
Just what is the YSP? - A bit of background is required for this explanation. Under the new ruling, HUD has determined that YSP is harmful to consumers and must be disclosed to borrowers. Further, HUD has mandated that the YSP be disclosed in the form of a credit to the borrower on the Good Faith Estimate of closing costs. In order to keep their YSP, mortgage brokers must now offset this credit by increasing their origination charge. In contrast, Mortgage Bankers are not required to disclose YSP, because they do not earn a yield spread.
Category Two: Charges that can increase up to 10% at settlement
Required services the lender selects – this can include appraisal, inspections and appraisal reviews.
Title services and lender’s title insurance if the lender selects the title company or borrower uses a company the lender identifies.
Owner’s title insurance if the borrower uses a company the lender identifies.
Required services that the borrower can shop for and if they use a company identified by the lender.
Government recorded charges.
Category Three: Charges that can change at settlement
Required services that the borrower can shop for as long as the company is not identified by the lender.
Title services and lender’s title insurance so long as the borrower does not use the company the lender has identified.
Owner’s title insurance (if the borrower does not use the company identified by the lender.
Initial deposit for the escrow account.
Daily interest charges.
Homeowner’s insurance.
There are other ingredients to these new rules and all are designed to protect the borrower from harmful or predatory lending practices. For the complete HUD booklet on this subject click here.
Until now many of the fees charged by lenders, title companies and third party providers could undergo dramatic changes between the time the loan was originated and the time it closed. These changes could amount to hundreds of dollars in additional money being charged to the borrower. Some of these increases were unavoidable. In most cases not only were they avoidable, but one set of fees was quoted to get the business while the actual fees were withheld until closing.
In 2005 HUD held a series of roundtable discussions with industry representatives, trade associations and consumer groups to discuss the impacts of these practices. After two and one half years, HUD its proposed rule changes on March 14, 2008. Since then HUD has received over 12,000 public comments in response to these proposed rules.
The hope of HUD is that these new rules will help consumers shop for the loan that is best for their needs. HUD believes that shopping leads to greater competition and that increased competition leads to lower prices.
Because loan fees have been at the center of this controversy, HUD has attempted to simplify the shopping process for borrowers. By dividing all loan fees into three categories it is hoped that borrowers will be able to make more wise decisions when making their choice for home financing.
Category One: These Fees Cannot Increase at Settlement
The lenders origination charge – this is the up front cost the lender charges to provide their services. In the past, this fee has seen dramatic increases, sometimes based on the difficulty of processing the borrower’s file.
The credit or charge (points) for the specific interest rate after it is locked – many lenders have made it their practice to “float” the interest rate until pricing improves and the yield they make increases. This spread is called the yield spread, or YSP. If pricing is worse, the points charged for the “promised” rate have historically increased. Mortgage Brokers will no longer be able to pass on an increased fee but instead will be held accountable to own up to their own risk when floating an interest rate.
Just what is the YSP? - A bit of background is required for this explanation. Under the new ruling, HUD has determined that YSP is harmful to consumers and must be disclosed to borrowers. Further, HUD has mandated that the YSP be disclosed in the form of a credit to the borrower on the Good Faith Estimate of closing costs. In order to keep their YSP, mortgage brokers must now offset this credit by increasing their origination charge. In contrast, Mortgage Bankers are not required to disclose YSP, because they do not earn a yield spread.
Category Two: Charges that can increase up to 10% at settlement
Required services the lender selects – this can include appraisal, inspections and appraisal reviews.
Title services and lender’s title insurance if the lender selects the title company or borrower uses a company the lender identifies.
Owner’s title insurance if the borrower uses a company the lender identifies.
Required services that the borrower can shop for and if they use a company identified by the lender.
Government recorded charges.
Category Three: Charges that can change at settlement
Required services that the borrower can shop for as long as the company is not identified by the lender.
Title services and lender’s title insurance so long as the borrower does not use the company the lender has identified.
Owner’s title insurance (if the borrower does not use the company identified by the lender.
Initial deposit for the escrow account.
Daily interest charges.
Homeowner’s insurance.
There are other ingredients to these new rules and all are designed to protect the borrower from harmful or predatory lending practices. For the complete HUD booklet on this subject click here.
Tuesday, November 24, 2009
A Father's Love
The book lay under several layers of long forgotten personal items in the trunk of her car. Its binding showed evidence of neglect, yet it protected the unread handwritten pages. For more than a year the bound pages remained a part the items hoarded by the girl as she tried desperately to hold tightly to her fast fading youth.
Her senior year of High School became a distant memory in the rush of the fall semester of her College sophomore year. She was growing up; at least in many areas of her life. The discipline of regular class schedules and deadlines for papers and projects was reshaping her priorities. Values change. So do priorities. And so do friends. The old things pass away so that new things can come. In many ways, the girl was becoming a young woman. But still the book still lay under the growing pile of discarded items in the young woman’s crypt of her past.
For 263 days of her High School senior year, he sat at the coffee shop table sipping a mixture of coffee, cream and sweetener. And every day the unlined pages of a black bound journal were slowly and thoughtfully filled with the love he poured out for his daughter. He was a father and he loved his girl. He provided for her needs. He protected her from the encroachments of the world as best he could. And now in the pages of this book, he wrote the words of his life experience, dipping each thought into the ink well of his heart. His hope was that somehow this labor of love would help preserve his precious girl.
“My dear daughter”, headlined the top of each page. What followed was a different story every day; a new insight into life. A sliver of wisdom, a drop of knowledge, a pinch of experience, a glimmer of insight.
“When Niagara Falls was first discovered the flow of water over the falls was much greater than it is today. Then the amount of water going over the falls caused considerable erosion moving the lip of the falls backward up to 3 feet per year. But man’s need for electricity led to the construction of several dams upstream from the falls so that water could be redirected through turbines creating electricity. Now the volume of water passing over the falls is greatly reduced and the erosion caused by the water has slowed to about 1 foot per year. The Niagara Falls are one of many natural wonders that display God’s handiwork. And so your life was created as a wonderful miracle whose purpose is to demonstrate the magnificence of God. Construction of man-made structures, no matter how noble, has interfered with the natural flow of God’s wonder at Niagara. The same will be true should you allow the trappings of this world to impede the display of God’s wonder in your life. Not only will these impede the flow of His life through yours, it will greatly reduce His plans to reshaping and direct the flow of your life. Choose wisely those things you build into your life.”
The girl came home from college one day and her dad decided to clean out her car. In the trunk he found the black bound journal. Retrieving it, he placed it on the bookshelf of his office. Within a few days she returned to college and the book was never mentioned.
Two years past. On another visit home, she was talking with her father in his office when she noticed the journal on his shelf. “There’s my book,” she said. “Where did you find it?”
“Beneath piles of things in the trunk of your car” was all he said.
“Can I have it back” she asked?
“Sure” and he handed her the book.
Another two years passed and the girl was preparing to enter Medical School. The father was so proud. His little girl was growing up to be a beautiful productive woman. And he loved her.
Six months ago his phone rang. “Hello?”
Only sobs on the other end of the line. He knew the sound of her crying. “Sweetheart, what’s the matter?” The only response was, “Daddy” followed by more sobs. In a moment she regained her composure.
“Are you alright?” It was his only thought.
“Daddy, I’ve been up all night reading the book you wrote for me. It’s the first time I’ve read it. You put so much work into writing it for me, and I never appreciated it until now.”
“Writing it wasn’t work to me; and I knew you would read it when the time was right.”
Silence for a long moment. Then a sniffle on the other end of the line.
“Daddy, I never knew how much I was loved. Thank you.”
Then they both cried.
Who has shown you how much you are loved? Take a moment this Thanksgiving to say two simple words to them. “Thank You”. Happy Thanksgiving to all!
Her senior year of High School became a distant memory in the rush of the fall semester of her College sophomore year. She was growing up; at least in many areas of her life. The discipline of regular class schedules and deadlines for papers and projects was reshaping her priorities. Values change. So do priorities. And so do friends. The old things pass away so that new things can come. In many ways, the girl was becoming a young woman. But still the book still lay under the growing pile of discarded items in the young woman’s crypt of her past.
For 263 days of her High School senior year, he sat at the coffee shop table sipping a mixture of coffee, cream and sweetener. And every day the unlined pages of a black bound journal were slowly and thoughtfully filled with the love he poured out for his daughter. He was a father and he loved his girl. He provided for her needs. He protected her from the encroachments of the world as best he could. And now in the pages of this book, he wrote the words of his life experience, dipping each thought into the ink well of his heart. His hope was that somehow this labor of love would help preserve his precious girl.
“My dear daughter”, headlined the top of each page. What followed was a different story every day; a new insight into life. A sliver of wisdom, a drop of knowledge, a pinch of experience, a glimmer of insight.
“When Niagara Falls was first discovered the flow of water over the falls was much greater than it is today. Then the amount of water going over the falls caused considerable erosion moving the lip of the falls backward up to 3 feet per year. But man’s need for electricity led to the construction of several dams upstream from the falls so that water could be redirected through turbines creating electricity. Now the volume of water passing over the falls is greatly reduced and the erosion caused by the water has slowed to about 1 foot per year. The Niagara Falls are one of many natural wonders that display God’s handiwork. And so your life was created as a wonderful miracle whose purpose is to demonstrate the magnificence of God. Construction of man-made structures, no matter how noble, has interfered with the natural flow of God’s wonder at Niagara. The same will be true should you allow the trappings of this world to impede the display of God’s wonder in your life. Not only will these impede the flow of His life through yours, it will greatly reduce His plans to reshaping and direct the flow of your life. Choose wisely those things you build into your life.”
The girl came home from college one day and her dad decided to clean out her car. In the trunk he found the black bound journal. Retrieving it, he placed it on the bookshelf of his office. Within a few days she returned to college and the book was never mentioned.
Two years past. On another visit home, she was talking with her father in his office when she noticed the journal on his shelf. “There’s my book,” she said. “Where did you find it?”
“Beneath piles of things in the trunk of your car” was all he said.
“Can I have it back” she asked?
“Sure” and he handed her the book.
Another two years passed and the girl was preparing to enter Medical School. The father was so proud. His little girl was growing up to be a beautiful productive woman. And he loved her.
Six months ago his phone rang. “Hello?”
Only sobs on the other end of the line. He knew the sound of her crying. “Sweetheart, what’s the matter?” The only response was, “Daddy” followed by more sobs. In a moment she regained her composure.
“Are you alright?” It was his only thought.
“Daddy, I’ve been up all night reading the book you wrote for me. It’s the first time I’ve read it. You put so much work into writing it for me, and I never appreciated it until now.”
“Writing it wasn’t work to me; and I knew you would read it when the time was right.”
Silence for a long moment. Then a sniffle on the other end of the line.
“Daddy, I never knew how much I was loved. Thank you.”
Then they both cried.
Who has shown you how much you are loved? Take a moment this Thanksgiving to say two simple words to them. “Thank You”. Happy Thanksgiving to all!
Friday, November 20, 2009
Six Killers of Home Mortgage Financing
The recent extension of the $8,000 tax credit for first time home buyers and the $6,500 tax credit for home buyers who currently own a home holds promise for a more robust winter housing market than usual. Because more buyers will be entering the market for home financing I thought it beneficial to offer insight into six common pitfalls to securing home financing.
Low Appraisal Value: You’ve found a home you like and your offer has been accepted. The appraisal was done a couple of days ago but the value came in under the contracted sales price. This scenario is not as uncommon as you might think in our topsy-turvy real estate world. If this happens to you, you’ve reached a point where the lender will most likely decline the financing until the purchase price is lowered to meet the appraised value.
Too High Debt to income ratio: All lenders use a “debt to income” calculation to qualify borrowers for home loans. This threshold is different for different lenders but should be a point of interest for anyone seeking home financing. The ratio appears as a “percent” and is derived by adding the monthly payments appearing on the borrower’s credit report including the new house payment (principal, interest taxes, insurance, and private mortgage insurance) and dividing this amount by the total monthly gross income being used to qualify for the loan. If this number exceeds the lender’s threshold (usually between 36% and 45%) the loan will likely be declined.
Change in employment status: Perhaps you have recently changed jobs. It is the same line of work but your new employer now considers you a W-2 employee whereas before you reported your income on a 1099. Or you were a W-2 employee and you now own your own business. In either of these instances most underwriters will require you to provide your most recent two years tax returns demonstrating this type of income in order to qualify for a home loan.
Too many repairs: In today’s housing market a larger number of homes on the market are foreclosure homes and may be in great need of repairs. It the home is in particularly poor condition it may be difficult to find a lender willing to make the purchase loan.
After the appraiser examines the home and prepares the report, many of these deals simply fall apart because of leaky roofs, other water damage, broken windows, faulty HVAC, electrical or plumbing issues. Some of these homes are listed as “cash only” sales. In other words the seller has had other buyers who were refused financing and will not only entertain cash buyers.
Tax Trouble: You work hard every day but when you file your taxes you report a large amount of unreimbursed employee expenses. Any amount you deduct for expenses like these, must be deducted from the income used to qualify you for the loan. I recently had a customer who claimed over $10,000 in unreimbursed auto expenses. She had over $50,000 in total income, but subtracting the unreimbursed expenses left her with too little income to qualify for the loan she wanted.
Several years ago, you had a tax lien, but have since paid that lien. Everything is alright now, right? Not so fast. It is not uncommon for a paid tax lien to still show on your credit report as not paid and unreleased. Because getting this release can take some time, if you’ve had a previous tax lien filed on your home, check now to make sure that it shows as being released on your credit report.
Unclear CAIVRS: Credit Alert Interactive Voice Response System. This system is only used when processing FHA and VA loans, but because more strict conforming guidelines are being enforced requiring larger down payments and more reserves, these types of loans have increased in popularity.
CAIVRS is a government database that has delinquent borrower records from the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), the Department of Education (DOE), the Department of Agriculture (USDA), the Small Business Administration (SBA), the Federal Deposit Insurance Corporation (FDIC), and the Department of Justice (DOJ). Your lender enters information into the CAIVRS system about everyone involved in the real estate transaction; buyer, seller, (or owner if it is a refinance), realtor, appraiser, inspector, etc. Any of these names show up on the CAIVRS list can cause a setback in the progress of your government back loan.
Low Appraisal Value: You’ve found a home you like and your offer has been accepted. The appraisal was done a couple of days ago but the value came in under the contracted sales price. This scenario is not as uncommon as you might think in our topsy-turvy real estate world. If this happens to you, you’ve reached a point where the lender will most likely decline the financing until the purchase price is lowered to meet the appraised value.
Too High Debt to income ratio: All lenders use a “debt to income” calculation to qualify borrowers for home loans. This threshold is different for different lenders but should be a point of interest for anyone seeking home financing. The ratio appears as a “percent” and is derived by adding the monthly payments appearing on the borrower’s credit report including the new house payment (principal, interest taxes, insurance, and private mortgage insurance) and dividing this amount by the total monthly gross income being used to qualify for the loan. If this number exceeds the lender’s threshold (usually between 36% and 45%) the loan will likely be declined.
Change in employment status: Perhaps you have recently changed jobs. It is the same line of work but your new employer now considers you a W-2 employee whereas before you reported your income on a 1099. Or you were a W-2 employee and you now own your own business. In either of these instances most underwriters will require you to provide your most recent two years tax returns demonstrating this type of income in order to qualify for a home loan.
Too many repairs: In today’s housing market a larger number of homes on the market are foreclosure homes and may be in great need of repairs. It the home is in particularly poor condition it may be difficult to find a lender willing to make the purchase loan.
After the appraiser examines the home and prepares the report, many of these deals simply fall apart because of leaky roofs, other water damage, broken windows, faulty HVAC, electrical or plumbing issues. Some of these homes are listed as “cash only” sales. In other words the seller has had other buyers who were refused financing and will not only entertain cash buyers.
Tax Trouble: You work hard every day but when you file your taxes you report a large amount of unreimbursed employee expenses. Any amount you deduct for expenses like these, must be deducted from the income used to qualify you for the loan. I recently had a customer who claimed over $10,000 in unreimbursed auto expenses. She had over $50,000 in total income, but subtracting the unreimbursed expenses left her with too little income to qualify for the loan she wanted.
Several years ago, you had a tax lien, but have since paid that lien. Everything is alright now, right? Not so fast. It is not uncommon for a paid tax lien to still show on your credit report as not paid and unreleased. Because getting this release can take some time, if you’ve had a previous tax lien filed on your home, check now to make sure that it shows as being released on your credit report.
Unclear CAIVRS: Credit Alert Interactive Voice Response System. This system is only used when processing FHA and VA loans, but because more strict conforming guidelines are being enforced requiring larger down payments and more reserves, these types of loans have increased in popularity.
CAIVRS is a government database that has delinquent borrower records from the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), the Department of Education (DOE), the Department of Agriculture (USDA), the Small Business Administration (SBA), the Federal Deposit Insurance Corporation (FDIC), and the Department of Justice (DOJ). Your lender enters information into the CAIVRS system about everyone involved in the real estate transaction; buyer, seller, (or owner if it is a refinance), realtor, appraiser, inspector, etc. Any of these names show up on the CAIVRS list can cause a setback in the progress of your government back loan.
Friday, November 13, 2009
7 Deadly Home Buying Mistakes
It’s official; President Obama has extended the home buyer tax credit through April 30, 2010. This legislation translates into an $8,000 tax credit for first time home buyers and $6,500 for subsequent home buyers. It also means an increase in activity on real estate transactions.
Because of the deadline, everyone should anticipate that the market will be a bit more crowded than it has been of late. The more crowded the market gets, the easier it becomes for home buyers to commit one of the 7 deadly home buying mistakes.
Demand Advocate Accountability: Every home purchase involves several key players. These participants include the realtor, the home inspector, the pest inspection, the appraiser, and the lender. Because most of us don’t buy a home every year, it’s easy to get lost in industry specific speech shuffle. Words and terms that the average consumer doesn’t understand can easily lead the buyers to unnecessary confusion. Here’s the bottom line. Everyone involved in your home transaction works for you. They are providing a service you need to purchase a home. They are spending your money. That makes you the boss. If something isn’t clear, call a time-out and demand a clear definition. In short, question without fear.
Don’t be a house hog: This is a very simply mistake that many home buyers make; buying more house than they need or buying a home that they are barely able to afford. Life has a funny way of handing surprises to us. If you buy a home you are barely able to afford, you are setting yourself up for trouble the next time life surprises you with an unexpected change.
Flatten Financing Fees: When signing the paperwork for a new mortgage, always remember that you are actually purchasing financing. There will always be some fees associated with all financing; and this is not the concern. It is the excessive charges that cause home buyers to pay too much to get into a home. When it comes to financing, be smart and ask questions about the fees you are being charged. It’s your money, make it work for you.
Credit Roulette: Once you’ve been approved for financing, don’t do anything that could negatively impact your credit report and scores. One home buyer I know didn’t think that quitting his job three days prior to closing would impact his ability to buy a home. He was in for a surprise when the underwriter called his workplace to verify employment the day before closing. He lost his financing and the house. Another home buyer decided that their new home required a house full of new furniture. So right after being approved for financing; they opened a large account at a local furniture store and maxed it out. Their credit scores took a dive and when the underwriter pulled their credit just before signing off on their loan, she discovered that their new scores fell below the minimum approvable scores for home financing. They too lost their financing and couldn’t buy the house.
Know the Neighborhood: Simply because you like a house and the neighborhood, remember that the wise home buyer takes the time to get to know the area just a bit better. Drive through the sub-division at various times of the day. What is traffic like entering and exiting the neighborhood? Are there a lot of cars parked on the street at night? Stop and ask some of your potential new neighbors the things they like and dislike about living in the sub-division. If the neighborhood has a pool, give it a quick look. And don’t forget to read the neighborhood association by-laws. Make sure you can live with these guidelines.
Ready, Set, Think: You’re ready to buy a home. You have the down payment and closing costs and you have your financing arranged. Before signing the contract take a step back and think. Does this home do more than meet our present needs? Will it meet our needs for the foreseeable future? What are the projected values of this home for the next 5, 10 and 15 year? If we have to stay her longer than we anticipate, will we be happy here? Buying a home involves emotions, but don’t let the emotions rule the decision.
Paralysis of Analysis: On the other side of the spectrum is the tendency of some home buyers to delay making a decision because they are still thinking about it. Great home buys have been lost by home buyers who sit on the fence too long after gathering all the necessary data. Every real estate transaction has a point when it’s yes or no. When it’s time to paint, get out your brush, or get off the ladder.
Because of the deadline, everyone should anticipate that the market will be a bit more crowded than it has been of late. The more crowded the market gets, the easier it becomes for home buyers to commit one of the 7 deadly home buying mistakes.
Demand Advocate Accountability: Every home purchase involves several key players. These participants include the realtor, the home inspector, the pest inspection, the appraiser, and the lender. Because most of us don’t buy a home every year, it’s easy to get lost in industry specific speech shuffle. Words and terms that the average consumer doesn’t understand can easily lead the buyers to unnecessary confusion. Here’s the bottom line. Everyone involved in your home transaction works for you. They are providing a service you need to purchase a home. They are spending your money. That makes you the boss. If something isn’t clear, call a time-out and demand a clear definition. In short, question without fear.
Don’t be a house hog: This is a very simply mistake that many home buyers make; buying more house than they need or buying a home that they are barely able to afford. Life has a funny way of handing surprises to us. If you buy a home you are barely able to afford, you are setting yourself up for trouble the next time life surprises you with an unexpected change.
Flatten Financing Fees: When signing the paperwork for a new mortgage, always remember that you are actually purchasing financing. There will always be some fees associated with all financing; and this is not the concern. It is the excessive charges that cause home buyers to pay too much to get into a home. When it comes to financing, be smart and ask questions about the fees you are being charged. It’s your money, make it work for you.
Credit Roulette: Once you’ve been approved for financing, don’t do anything that could negatively impact your credit report and scores. One home buyer I know didn’t think that quitting his job three days prior to closing would impact his ability to buy a home. He was in for a surprise when the underwriter called his workplace to verify employment the day before closing. He lost his financing and the house. Another home buyer decided that their new home required a house full of new furniture. So right after being approved for financing; they opened a large account at a local furniture store and maxed it out. Their credit scores took a dive and when the underwriter pulled their credit just before signing off on their loan, she discovered that their new scores fell below the minimum approvable scores for home financing. They too lost their financing and couldn’t buy the house.
Know the Neighborhood: Simply because you like a house and the neighborhood, remember that the wise home buyer takes the time to get to know the area just a bit better. Drive through the sub-division at various times of the day. What is traffic like entering and exiting the neighborhood? Are there a lot of cars parked on the street at night? Stop and ask some of your potential new neighbors the things they like and dislike about living in the sub-division. If the neighborhood has a pool, give it a quick look. And don’t forget to read the neighborhood association by-laws. Make sure you can live with these guidelines.
Ready, Set, Think: You’re ready to buy a home. You have the down payment and closing costs and you have your financing arranged. Before signing the contract take a step back and think. Does this home do more than meet our present needs? Will it meet our needs for the foreseeable future? What are the projected values of this home for the next 5, 10 and 15 year? If we have to stay her longer than we anticipate, will we be happy here? Buying a home involves emotions, but don’t let the emotions rule the decision.
Paralysis of Analysis: On the other side of the spectrum is the tendency of some home buyers to delay making a decision because they are still thinking about it. Great home buys have been lost by home buyers who sit on the fence too long after gathering all the necessary data. Every real estate transaction has a point when it’s yes or no. When it’s time to paint, get out your brush, or get off the ladder.
Friday, November 6, 2009
Something Old, Something New in Tax Credits
I’m writing this post on Friday morning, anticipating that President Obama will sign into law the extension of the $8,000 first time home buyer credit. This new legislation is really not new, but a modification and extension of the tax credit set to expire November 30, 2009. A new feature added to this bill that provides a $6,500 tax credit for current home owners who sell their home and purchase a new home.
Here are the details. (Please remember, as of this writing, the President has yet to sign the legislation into law.)
Continuation of $8,000 first-time home buyer credit. With a few distinctions, the old tax credit becomes the new tax credit. What is the same is the definition of First-time home buyer: not having owned in a home for the previous 36 months. What is different is that the contract for the home purchase must be signed on or before April 30, 2010 and closing must take place on or before June 30, 2010.
Current legislation requires that closing on the property take place on or before November 30, 2009. This has created a rush to close some transactions in an unreasonably short time frame. The new legislation provides a pressure release allowing them to close after the end of November deadline and still claim the tax credit.
The new April 30, 2010 deadline for signed contracts and the extended June 30, 2010 deadline for closing provides a more flexible window for home buyers to find the right home, agree to a purchase price all the way up to the end of next April and still have 60 days to close and claim the tax credit.
Clarification of Tax Credit. Current legislation requires the use of IRS form 5405 (found at http://www.irs.gov/pub/irs-pdf/f5405.pdf). This is the only form available at this time, but it is certain that a new/amended form will be released to include new tax credit guidelines. If you have already purchased a home or are planning to take advantage of this tax credit, make certain to use the correct form.
Existing Home Owners are Now Included. Under the new legislation current home owners are eligible for a $6,500 tax credit when selling their home and purchasing a new home. The catch is the tax credit is available only to those homeowners who have lived in their current home for at least five years. The home must be sold and a new contract must be signed on or before April 30, 2010 and closing must transpire on or before June 30, 2010.
New Income Limitation for Qualifying Home Buyers. Under the legislation set to expire November 30, 2009, maximum adjusted gross income limits are $75,000 for singles and $150,000 for those married filing jointly. The new legislation increases these limits to $125,000 single and $250,000 married filing jointly. This increase should make the tax credit available to more middle class Americans.
Something for Nothing? The recent “Cash for Clunker’s” tax credit program was touted a success because over 600,000 new vehicles were purchased under the program. The surprise for many of these new car owners is that they will be required to count the $4,500 tax credit as income on subsequent tax years. If you are in the 33% tax bracket, this would mean a sizeable increase in your tax liability.
It has yet to be finally determined if those who have taken advantage of the existing $8,000 tax credit or those who will take advantage of the new legislation will be required to claim the amount of their tax credit as income in subsequent years tax returns. It would be wise to consult your CPA and get all the information before making your final decision regarding the existing and the new home buyer stimulus tax credit.
Here are the details. (Please remember, as of this writing, the President has yet to sign the legislation into law.)
Continuation of $8,000 first-time home buyer credit. With a few distinctions, the old tax credit becomes the new tax credit. What is the same is the definition of First-time home buyer: not having owned in a home for the previous 36 months. What is different is that the contract for the home purchase must be signed on or before April 30, 2010 and closing must take place on or before June 30, 2010.
Current legislation requires that closing on the property take place on or before November 30, 2009. This has created a rush to close some transactions in an unreasonably short time frame. The new legislation provides a pressure release allowing them to close after the end of November deadline and still claim the tax credit.
The new April 30, 2010 deadline for signed contracts and the extended June 30, 2010 deadline for closing provides a more flexible window for home buyers to find the right home, agree to a purchase price all the way up to the end of next April and still have 60 days to close and claim the tax credit.
Clarification of Tax Credit. Current legislation requires the use of IRS form 5405 (found at http://www.irs.gov/pub/irs-pdf/f5405.pdf). This is the only form available at this time, but it is certain that a new/amended form will be released to include new tax credit guidelines. If you have already purchased a home or are planning to take advantage of this tax credit, make certain to use the correct form.
Existing Home Owners are Now Included. Under the new legislation current home owners are eligible for a $6,500 tax credit when selling their home and purchasing a new home. The catch is the tax credit is available only to those homeowners who have lived in their current home for at least five years. The home must be sold and a new contract must be signed on or before April 30, 2010 and closing must transpire on or before June 30, 2010.
New Income Limitation for Qualifying Home Buyers. Under the legislation set to expire November 30, 2009, maximum adjusted gross income limits are $75,000 for singles and $150,000 for those married filing jointly. The new legislation increases these limits to $125,000 single and $250,000 married filing jointly. This increase should make the tax credit available to more middle class Americans.
Something for Nothing? The recent “Cash for Clunker’s” tax credit program was touted a success because over 600,000 new vehicles were purchased under the program. The surprise for many of these new car owners is that they will be required to count the $4,500 tax credit as income on subsequent tax years. If you are in the 33% tax bracket, this would mean a sizeable increase in your tax liability.
It has yet to be finally determined if those who have taken advantage of the existing $8,000 tax credit or those who will take advantage of the new legislation will be required to claim the amount of their tax credit as income in subsequent years tax returns. It would be wise to consult your CPA and get all the information before making your final decision regarding the existing and the new home buyer stimulus tax credit.
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