Frequently, lenders email me updates about the current mortgage market. This week, I got an email from Mike Weldy at Prime Lending. Titled “The Perfect Storm”, it outlined the following:
A “Perfect Storm” of low purchase prices and historic low interest rates
Compare this example:
$250,000 purchase price at 4.5% (which recently closed) Versus $250,000 purchase price with a 6% rate (possible interest rate in 2011)
The projected payment would jump from $1,267 to $1,499! (an increase of over 18% )
If you believe house values will fall further, consider this: if you were to purchase this exact home for $225,000 at 5.5% (assuming taxes, insurance, and HOA were the same), your projected monthly payment would still be higher at $1,278!
Therefore, from a payment perspective, IF the market dropped an additional 10%, it would still be a lesser monthly payment to pay the higher sales price at the lower interest rate.
I like playing with numbers, so I thought Mike’s scenario was a perfect way to lay out the situation in today’s real estate market. If you want to talk through your scenario to see if now might be a good time for you to finance a home, call Mike directly.
Paul Wakefield, a Senior Loan Office at V.I.P. Mortgage Inc., emails me a monthly newsletter. Sometimes the tips are so timely, like this one below:
Top 10 Credit Don’ts During the Loan Process
Many are taking advantage of interest rates at historic lows, either by re-structuring debt with a refinance or purchasing a new home. However, the recent economic crisis has created even tougher guidelines and credit requirements and there are some things that consumers must be aware of when applying for a loan.
Leading nationwide credit expert and President of Credit Resource Corporation, Linda Ferrari, developed the top 10 credit don’ts during the loan process, to help you get your arms around those things that can unknowingly wreak havoc on your loan transaction.
1. Don’t do anything that will cause a red flag to be raised by the scoring system 2. Don’t apply for new credit of any kind 3. Don’t pay off collections or charge offs 4. Don’t max out or over charge on your credit card accounts 5. Don’t consolidate your debt onto 1 or 2 credit cards 6. Don’t close credit card accounts 7. Don’t pay late 8. Don’t allow any accounts to run past due-even one day! 9. Don’t dispute anything on your credit report 10. Don’t lose contact with your mortgage and real estate professionals
This is excellent advice for any buyer, and even more important for home buyers involved in a short sale transaction. It does take some additional attention to keep your finances in perfect order for the 6-8 months it may take to close on a short sale. The last thing you want to happen is fail to qualify for a loan because of a delayed payment or large purchase made during the extend wait. Keep in touch with your loan officer, and be sure to ask questions about any type of financial transaction that you think might impact your ability to buy a home.
I received the following info in an email from Matthew Remus, a lender at People’s Home Equity.
The Federal Tax Credit for First time Home Buyers is still available to US Military Service Men and Women until June 30, 2011.
Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit. Thus, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2011. If a binding contract is entered into by that date, the taxpayer has until June 30, 2011, to close on the purchase. Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010
One of the mortgage blogs I read (or listen to) regularly is Tyler Osby’s Mortgage with Wealth. Even though he’s located in Iowa, he shares information that can be helpful for home buyers, regardless of where they live.
He recently emailed me this video, where he explains how mortgage lenders get paid. It’s just 5 minutes long and will explain a bit about the fees, as well as the front-end vs. the back-end of the mortgage compensation structure. If you are shopping for a loan, you need to know these kind of details, so you really are making accurate comparisons.
I took a class on FHA & VA Financing from Bruce King last week and thought I’d share a few of the notes I made in class. They may be a bit cryptic, so if you have any questions, please feel free to contact me or Bruce.
The lending environment has changed dramatically! Bruce shared that in 2002, his company offered 70 kinds of loans, and this year they offer just four:
Government (FHA & VA)
Conventional
Jumbo (privately funded)
I learned that the FHA loan program was created by the National Housing Act of 1934 to help lower income families to purchase homes. It virtually disappeared in the white hot market several years ago, but it appears to me that it is now the most commonly seen loan for properties priced under the Maricopa County loan limit of $346,250. (effective 1/1/2010).
Correction: The Maricopa County loan limit remains at $346,250 for 2010.
Bruce shared some of FHA Myths (and then proceeded to debunk them):
Too complicated
Too much paperwork
Too expensive for seller
Higher rates
Mortgage insurance cannot be removed
Takes too long to close
Doesn’t benefit the buyer
Doesn’t benefit the seller
Conventional is a better loan
You have to have more money to close
Conventional is a better loan
Buyer can’t understand the loan
And then, he explained many of the benefits of FHA financing:
No reserves are required, versus 2 months for conventional.
3.5% minimum down payment, versus 10% for conventional.
Gift funds are allowed
Non-occupant co-borrowers allowed (kiddie condo)
Pricing same regardless of FICO score
Up to $5,000 medical collections can be unpaid
No credit history required — alternate credit such as car insurance, utility bills, or cell phones can be used.
Minimum time after Chapter 7 is 2 years.
Can be approved after one year of on-time payments after Chapter 13
Minimum time period after a foreclosure is 3 years, unless there are extenuating circumstances, such death or serious illness
Gift funds are allowed for down payment and closing costs, and can be used can come from:
Relative (some fairly specific requirements here)
Borrower’s employer or labor union
Charitable or non-profit organization
Government agency
Public entity with home ownership assistance
First-time buyer program
First-time home owners can also use money from their 401K/ IRA’s as down payment. I’ve been told that in this situation, the buyer does not have to pay the 10% early withdrawal in this case.
Bruce said that qualifying for an FHA loan is based on the four C’s:
Character (credit)
Capacity (income)
Capital (reserves)
Collateral (value)
And, the buyer will need to have documentable income:
Two years of employment / self-employment history
Income must be stable
Must continue for at least 3 years
Once the buyer has a loan approval and an accepted offer on a property, the FHA appraisal will be ordered. In addition to valuing the property, the appraiser will be evaluating the property looking for health and safety issues that must be addressed before the loan is approved.
Some of the the home repairs that typically must be completed prior to FHA loan approval are:
Peeling paint
Broken windows
Plumbing leaks
Exposed wiring
Pool & pool equipment
Termite damage
Exposed exterior surfaces
Roof issues
For home sellers who are considering accepting FHA financing, it’s really best to have these type of issues corrected prior to the FHA appraisal to streamline the process.
From my perspective, FHA loans have become the loan of choice for most, if not all, of the first-time home buyers I work with. However, I thought it was worth looking at the Scottsdale real estate market a little bit more closely to see if FHA is as predominant as I believe.
I reviewed single family home sales in Scottsdale for the month of December 2009 (via the Arizona Regional MLS), and found 35 single family homes had sold between $100,000 and $200, 000.
16 homes used FHA financing (45%)
8 chose conventional (23%)
The remainder paid cash (31%)
In the price range between $201,000 and 300,000, the proportions changed somewhat. (The FHA limit was $346,250 through 12/31/2009.) A total of 69 homes sold in December.
16 homes (23%) used FHA financing
29 used conventional (43%)
1 utilized VA
The remainder paid cash (33%)
So, FHA is really funding a significant portion of the entry-level range of the Scottsdale home market, but does taper off as home prices rise. Buyers who are hoping to take advantage of the Home Buyer Tax Credit Extension will definitely increase their possibility of home ownership by taking a more serious look at FHA financing and discussing it with their lender.
I bought my first house, a couple years out of college, with FHA financing. It’s the only way I could have done it, during a period of double digit interest rates. I’m glad to know the program is still around, helping home buyers reach their goals.
Kari Monk, over at Wells Fargo, shared a copy of the new HUD-1 Settlement Statement a few weeks ago, and when I looked it over, I was pleased. Since then, I’ve talked to a number of other real estate agents who heard it was coming, but had no idea of the changes that had been made.
The HUD-1 is a statement drawn up by the title company that provides:
The type of loan (FHA, VA, or conventional)
Buyer, seller, property, and settlement agent information
A summary of both the buyer’s costs , which will include proration of property taxes, down payment, and loan amounts
Details of seller’s proceeds, after tax proration and loan payoff (if any)
Details of the settlement charges, including real estate broker fees, loan costs, lender required reserves for insurance and property taxes, and title charges
The new and revised HUD-1 includes two new sections:
A comparison of the buyer’s lender’s original Good Faith Estimate with the HUD-1 figures completed for closing. These costs include the loan origination charge, discount points, escrow fee, and title insurance.
A section for loan terms, which are spelled out in plain English.
I love the Loan Term section!
Look at these straightforward questions where really important questions about the home buyer’s loan are answered.
Your initial loan amount is ___.
Your loan term is ___ years.
Your initial interest rate is ___%.
Your initial monthly amount owed for principal, interest, and any mortgage insurance is $___.
Can your interest rate rise? Yes or no.
Even if you make payments on time, can your loan balance rise? Yes or no.
Even if you make payment on time, can your monthly amount owed for principal, interest and mortgage insurance rise? (And if so, how much.)
Does your loan have a prepayment penalty? Yes or no.
Does your loan have a balloon payment? Yes or no.
Total amount owed included escrow account payments
Some have expressed concern about this new form. I, for one, think it’s a great improvement and can’t wait to see in use.
