Friday, October 5, 2012

Seller Contributions

Depending on the seller’s eagerness to close the transaction, the seller of a property will often become aggressive and offer to pay some or all of the closing costs, origination points and/or pre-paid items (interest, hazard insurance, tax escrows) associated with the purchase on the buyer’s behalf. This common strategy can be very beneficial to the buyer, particularly if the buyer is short on funds to close. It can also be the vehicle that effectively drives the interest rate down and provides the buyer with a more affordable monthly payment.

There are limitations on how much the seller is permitted to
contribute, depending on the loan-to-value ratio. The typical seller
contribution is from 3% to 9% of the purchase price, based on the size of the down payment. Seller contributions may sometimes be isolated to non-recurring closing costs and/or origination or discount points only.
The lender will not permit the seller to contribute funds back to the buyer
after the close of the transaction to accommodate repairs to the property.
Items such as roof leakage or new carpet cannot be covered by any
seller contribution clause.

Sunday, September 30, 2012

Marriage and Mortgages FAQs

Q: Could one spouse's bad credit negatively affect the other?
A: If a couple is applying for credit jointly, say for a loan or credit card, then yes. One person's lower score can negatively impact the interest rate the couple will be offered. This is because every borrower has three credit scores, and lenders use the lowest "middle" credit score of the two borrowers. We have seen many situations in the past in which one borrower was dropped from the application – but only if the lower score belongs to a non-working spouse. This can create a serious issue, however, if the income is needed in order to qualify.

Q: Can one spouse's low score negatively affect the couple's chances of securing a mortgage?
A: Yes, if one borrower has negative credit items, such as late payments or a foreclosure, the worst of the two will be taken into account when considering your mortgage application. With a foreclosure, this could mean having to wait at least three years to be eligible for a loan again.

Q: Does the lender use both people as a measure of creditworthiness, or is it possible to focus on the spouse with the better score?
A: In the past, this was possible, but now the lowest score of the two (or however many) people on the application is used. For example, if two couples buy investment property or a second home, the lowest credit score of those four people will be used to determine the rate (which includes loan-level price adjustments or "risk-based" pricing). This could also include parents that are co-signing a loan for one of their children.

Friday, September 7, 2012

USDA Fees Are Increasing On October 1, 2012!

Act Now Before Costs Go Up!
USDA Rural Development and its loan program were designed to help improve the economy and quality of life throughout rural America. The program continues to remain a wonderful option for qualifying homebuyers, with zero down payment required.

But fee changes are coming!

Beginning October 1, the USDA Annual Fee will increase for both purchase and refinance transactions. In addition, the Up-Front Guarantee Fee will increase for refinance transactions.

If you want to find out what these fees increases could mean to you or someone you know, give me a call today. Home loan rates are still at historically low levels so if you or any of your friends, clients, or colleagues are looking to purchase or refinance a home, this is the perfect time to act...before it will cost even more to do so.

Fee Increase to Impact Home Loans

The Federal Housing Finance Agency (FHFA) has again increased the guarantee fee they charge to lenders delivering loans to Fannie Mae and Freddie Mac. This is important to know, as this increase has a rippling effect that will impact the cost of mortgage financing.

Here's what's happening and what it means to home loan rates:

What exactly is this "g-fee"? The guarantee fee or "g-fee" is an amount charged by mortgage-backed securities (MBS) providers, like Freddie Mac and Fannie Mae, to help protect against credit-related losses in the overall mortgage portfolio. In other words, it acts a lot like insurance and helps lower the overall risk...which means home loans can be offered at terrific interest rates to borrowers that have good – but not perfect – credit.

What exactly is the impact of the rate increase? The increase will impact loans with different amortizations in different ways. For example, for a $200,000 home loan, the increased g-fee (assuming a .125% increase in rate) would equate to $250 more per year in interest, or $7,500 more over 30 years. Someone buying or refinancing a home can certainly choose to buy down the cost with cash up front – but most folks will not do this.

Why is the guarantee fee being increased? FHFA has increased the guarantee fee to collect more revenue to enhance the safety and soundness of the Government Sponsored Enterprises (GSEs), and perhaps indirectly encourage private firms to participate in the mortgage market.

Who will this impact?
The change will impact all new borrowers using Fannie Mae and Freddie Mac loans.

When will it start?
Officially, the increase to guarantee fees will begin on December 1, 2012. However, Fannie Mae will also be making adjustments to pricing for those loans that are committed on or after November 1, 2012. It’s important to note that the increase is already being seen in rate sheets right now, since home loans being originated now will likely not be closed, pooled and securitized until December and therefore will need the increased g-fee priced in earlier.

The bottom line is that the g-fees will be going up...and this will impact homebuyers looking to obtain a home loan through Fannie Mae and Freddie Mac.

The good news is that home
loan rates are still at historic lows right now, and it's a great time to purchase a new home or refinance. If you or anyone you know has any questions, please call or email!

Monday, July 30, 2012

Fannie Mae's HomePath Program Be Sure to Check Out This Great Opportunity

I want to make sure you know about a great program that's available to homebuyers around the country. When foreclosures occur on Fannie Mae-owned properties, Fannie Mae hopes to sell those properties quickly so the community isn't impacted too greatly. These properties are known as HomePath properties, and there are some great incentives in purchasing them. Highlights include:
  • 97% conventional financing
  • 3% down payment can be gifted/grant funds
  • No appraisal (sale price = value)
  • No PMI
  • 6% seller concession allowable over 90%
  • Investment property allows for higher LTVs
    • 90% - 1 unit
    • 80% - 2 unit
    • 75% - 3-4 unit OR if financing properties 5-10
The bottom line is that HomePath properties offer flexibility and opportunities to save some money. So, it may be worth your time to take a look at them.

Buying a home is a big decision, but even in today's markets great opportunities are available. If you want to learn more about HomePath opportunities in your area, call or email me anytime. I'm always happy to answer any questions you may have.

Saturday, July 28, 2012

Need a Smaller Down Payment?

While down payment requirements have increased for some programs, it is still possible to buy a home with less than 5% down…or even NO money down.

For example, FHA offers a loan program that requires as little as 3.5% down. In addition, the VA and USDA offer loans that require no down payment. Of course, there are restrictions with each of these programs that can include maximum loan amounts based on a home buyer's location with FHA loans, income and property requirements for those offered by the USDA, and a home buyer's qualifying status as an eligible Veteran.

In addition to those programs, keep in mind that many sellers in today's market are willing to offer concessions, such as paying part or all of the buyer's closing costs. That can decrease the amount of funds buyers may be required to have to purchase their next home.

The point is that it's still possible for millions of Americans to purchase a home with less than 5% down.

Monday, July 23, 2012

Pre-approved Buyers: Disaster-Proof Your Deal

A constriction in mortgage product offerings and the ongoing effects of the credit crunch have radically changed our business.

It's not all doom and gloom. There is still plenty of money available to creditworthy borrowers. But lender guidelines have tightened significantly, and the days of easy credit with no down payment and no documentation are all but over.

With this in mind, it's more important than ever for homebuyers to get pre-approved – not pre-qualified – in order to avoid the kind of painful last-minute surprises that can blow up deals.

With actual written documentation that proves the full support of a lender, pre-approved borrowers represent less risk to sellers and the Realtor. Of course, there is no way to guarantee a flawless transaction every time. But, by working together to bring pre-approved borrowers to the marketplace, we can preempt the major challenges and create a great experience for everyone involved.

If you have any questions about this or any stage of the mortgage process, please don't hesitate to call.

Tuesday, July 3, 2012

FHA Loans Facilitate Home Ownership

The Federal Housing Administration (FHA) program first began in 1934 in an effort to encourage home ownership despite the difficult economic times of the era. The program enables consumers who may not qualify for a standard loan to obtain the financing they need to purchase a home without income limitations.

FHA loans differ from typical loans in that they are insured by the Federal Housing Administration, which is a part of the Department of Housing and Urban Development (HUD). Because this insurance reduces the lender's risk on the loan, lenders have greater flexibility with regard to approving loans. For example, FHA loans are not as restrictive with minimum credit scores so a client may be able to obtain a loan despite having had credit problems or even a bankruptcy in the past. Alternatively, if a consumer does not have a significant traditional credit history, it may still be possible to obtain financing by documenting payment histories on items such as rent and utilities. Individual policies by lender may vary so feel free to call me for additional clarification.

FHA loans require a down payment of as little as 3.5% of the purchase price. The down payment may be obtained as a gift from a family member.  Also, FHA loans allow the seller to contribute up to 6% of the sale price in seller concessions.  This money can be used to go towards the total amount needed at closing from the borrower. 

FHA loans are processed just like any other loan, and they provide a wonderful opportunity for consumers who are seeking to achieve home ownership!  If you would like to know more about the FHA loan or any other type of home financing please do not hesitate to give me a call.

Monday, July 2, 2012

Happy 4th of July!

I hope you and your family have a very safe and happy Fourth of July!  Someone said: "Liberty is the right to choose, freedom is the result of choice."  I hope you have a chance to choose to reflect on all the freedoms we are blessed with in this country.  I hope this will motivate you to say thank you to the heroes that have risked everything to secure said freedom!  HAPPY FOURTH OF JULY!

If there is ever anything I might do for you please do not hesitate to give me a call!

Monday, June 18, 2012

Homeowner's Insurance: Put the Right Policy In Place

In order to obtain a home loan, a borrower is usually required to have a homeowner's insurance policy in place. Experts agree that the most important question homeowners should ask when shopping for a plan is the A.M. Best rating of each company. New companies pop up all the time, and homeowners need to be informed about what a company can offer in terms of protection against potential risk.

Consumers should also become familiar with the liability portion of their policy. ACV (Actual Cash Value) policies pay claims based upon the depreciated value of the item or items lost. However, replacement cost policies will pay the full cost required to actually replace the items.

To ensure that the right amount of insurance is purchased, homeowners should obtain an appraisal every five years or so. If additions are made or remodeling takes place, homeowners will need to revisit and possibly upgrade their plan as well.

Experts say there are several important mistakes homeowners should be especially careful to avoid. The first is being dishonest on an application. This is absolute grounds to reject any claim. Secondly, if the property contains a detached structure - such as a guest house, a barn, a workshop, or a garage - be sure to include each one on the insurance policy. Finally, do not over-insure. Homeowners can save a little money by insuring only those items and structures that need to be replaced.

15-Year Fixed Rate Loans

A 15-Year Fixed Rate loan works well for borrowers who are nearing retirement and want to be debt-free when they get there. Because payments in a 15-year scenario are amortized over half the length of a 30-Year Fixed Rate loan, the monthly payments will be significantly higher in comparison. This is an important factor to consider before committing to a 15-year loan. However, the interest rate on a 15-Year Fixed Rate loan will be lower for the same reason - financing for 15 years costs much less than financing for 30 years.

If a borrower is 50 years old and would like to be debt-free when retiring at age 65, then a 15-Year Fixed Rate loan will allow the borrower to meet that goal as far as their mortgage is concerned. However, if there is any question as to whether the borrower will be able to commit to the higher monthly payment, the alternative is to take a 30-Year Fixed Rate mortgage and make pre-payments with some consistency. If the borrower has the discipline to make those extra payments whenever possible, he or she can still attempt to meet the same goal.

I prefer to educate my borrowers so they can compare the benefits of each program and have the opportunity to review loan options with their financial advisors.

Thursday, June 7, 2012

The Short Sale

While a short sale may be a last resort for many homeowners facing foreclosure, it also represents a great opportunity for potential home buyers and real estate investors. This article is designed to help answer a few basic questions about the substantial risk and reward involved in this extremely complex and often drawn out process.

What is a Short Sale?

A short sale is a legally-binding agreement to allow a home to be sold for less than the amount that is owed. And, while short sales are not by any means common or easy, because of increasing inventory levels and foreclosures in some parts of the country, lenders are much more eager to negotiate with borrowers who are having trouble paying their mortgages. For potential home buyers and real estate investors, a short sale also offers a great opportunity to purchase property at a significant discount.

However, don't expect a lot of help from the lender without first providing a sales contract from a qualified buyer and all the information required by the lender's loss mitigation department.

Of course, lenders are not looking to bail out "flippers" or other borrowers who simply overextended themselves. In most cases, a borrower must have suffered a serious financial hardship that directly caused him or her to default on the mortgage: the loss of a job, a serious illness, or the death of a loved one.

A written declaration and supporting documentation demonstrating financial hardship will definitely be required by the lender. This may include pay stubs, tax returns, and liquid asset statements, among other documentation.

Key Considerations to Keep in Mind

It's important to note that the difference between what is owed on a mortgage and the final amount the lender collects after the costs of the sale, including real estate commissions and possibly other charges don't simply disappear in a short sale. The difference is called a deficiency, and the lender determines if they will be forgiving this deficiency, continuing with a payment plan on some portion of the loss, or pursuing the Seller for the full deficiency. In the past, if this deficiency was forgiven it was considered taxable income to the borrower. However, thanks to the Mortgage Forgiveness Act of 2007, the tax burden for qualifying canceled mortgage debt (as high as 35%) for primary residences only has been temporarily waived.  The federal timeline has been extended to 2012 although states are not required to follow it for state income. So while deficiencies may not be taxable currently, they could be come taxable in the future and the seller in a short sale could still be liable for the deficiency balance.

If there are multiple liens against the property, all lien holders will have to be involved in the negotiation process, not just the first lien holder. Therefore, communication and patience are essential components of any short sale. This is why an experienced real estate agent and mortgage professional become so valuable to this process.

Monday, June 4, 2012

Interest Rates Change Daily

Interest rates change constantly, but it is important to know that rates are cyclical. If rates are currently at historical lows then we know there is a strong probability rates will go up again, and vice versa. Certain economic indicators such as unemployment data, consumer price index, retail sales data, and consumer confidence all have an effect on mortgage interest rates. But the key factor to watch is the relationship between stocks and bonds.

When the economy is slow and the stock market is "bearish," many investors move money out of stocks and into bonds and mortgage-backed securities. This causes mortgage interest rates to go down. When the economy is doing well, the stock market rallies and is considered "bullish." Investors then have a tendency to move their money out of that safe haven of bonds and mortgage-backed securities and back into stocks. As a result, mortgage interest rates go up.

My team and I keep a close eye on mortgage interest rates at all times in an effort to alert our clientele of opportunities to obtain lower financing. Let us know if you have any questions for us.

Saturday, June 2, 2012

Pros and Cons of a Bi-Weekly Mortgage Program

When borrowers enter into a contract to make bi-weekly payments on their mortgage, the amortization schedule is accelerated. For example, with a 30-year amortization schedule, the borrower makes 12 payments per year. In a bi-weekly arrangement, the borrower makes 26 'half' payments, which allows the loan to be paid off in 22.8 years instead of 30 years. It's the same as making 13 monthly payments.

This ultimately saves the borrower thousands of dollars in interest rate fees. However, bear in mind that bi-weekly programs usually have some type of setup, transaction, and maintenance fees associated with them. A custodian manages the bi-weekly payments in a trust account (and also makes a profit on the interest accrued there). Because the lender really doesn't accept partial payments, this middle man is still making monthly payments to the lender on some type of pre-payment schedule.

It is important for the consumer to know that the same results can be achieved without hiring an outside company to do this. As long as your loan program carries no pre-payment penalty, pre-payments can be made on a monthly or annual basis to shorten the loan term to save money on interest or remove PMI charges on loans that have less than a 20% down payment. The borrower simply needs to indicate the extra payment is being made toward the principal balance, and have the discipline to make these extra payments as scheduled.

Tuesday, May 29, 2012

What Is Title Insurance?

Title insurance is a policy that is usually issued by a title company to protect the lender against something that might have happened in the past, rather than something that might occur in the future. In essence, an extensive search of public records is conducted by the title company to validate who has held title to the property in the past. The lender wants to know if there are any liens, judgments or easements on the property that they should be aware of.

But title insurance also guards against hidden risks or unknown factors that might cause an encumbrance at some point in the future, such as unknown heirs, forged deeds or wills, misinterpreted wills, false impersonation of the true owner of the property, deeds signed over by persons of unsound mind, or defects in the recording of past titles. Title insurance covers the cost of the title search, and any legal fees that may result from any dispute over past property ownership. It is required by the lender and paid for by the buyer.

The smart home buyer will also purchase title insurance to protect their own interests. This is a one-time premium that protects the buyer or their heirs, as long as they retain an interest in the property.

Why Pay Private Mortgage Insurance (PMI)?

Private Mortgage Insurance (PMI) is required by most lenders when a borrower puts less than 20% down on a purchase loan. Paid for by the borrower, PMI not only protects the lender from foreclosure, it also enables many buyers to qualify for loans and purchase real estate when they couldn't have otherwise. On January 1, 2007, legislation went into effect making PMI tax deductible for new borrowers whose personal adjusted gross income is $100,000 or less. This has created additional opportunities for many buyers to finance a more expensive home or, in some cases, to obtain a lower monthly payment, while reducing annual income taxes.

In most cases PMI can be cancelled once the accumulated equity has reached 20% of the home's value, while a second home loan will have to be paid back in full regardless. 

Choosing PMI is not a one-size-fits-all decision. It is my job to weigh my borrowers' long-term goals and to provide comprehensive solutions that clearly explain all of the pros and cons of each mortgage option available. It's a job I take very seriously. 

Sunday, April 22, 2012

A Home Repair Loan

FHA's Streamlined 203(k) Loan Program
I wanted to make sure you knew about a wonderful loan program that lets homebuyers finance up to an additional $35,000 into their mortgage to improve or upgrade their home before move-in. FHA's Streamlined 203(k) Loan Program helps homebuyers tap into cash to pay for property repairs or improvements, like those identified by a home inspector or FHA appraiser.

Here are some of the eligible repairs and improvements for the 203(k) loan program:
  • Repair or replacement of roofs, downspouts, and gutters
  • Repair, replacement, or upgrade of existing HVAC systems
  • Repair or replacement of flooring
  • Minor remodeling (i.e. kitchen) not involving structural repairs
  • Painting of the interior and exterior
  • Weatherization, including storm windows and doors, insulation, weather stripping, etc
  • Purchase and installation of appliances, including washers and dryers, refrigerators, dishwashers, microwave ovens, and free-standing ranges
  • Accessibility improvements for people with disabilities
  • Repair, replace, or add exterior decks, patios, or porches
  • Basement finishing and remodeling not involving structural repairs
  • Window and door replacements and exterior wall re-siding
  • Septic system or well repair or replacement
  • Lead-based paint stabilization or abatement of lead-based paint hazards (engineer's report required upon completion)

FHA 203(k) loans can be used for purchasing a primary residence or refinancing the rate and term. Cash-out refinances are not allowed.

Sunday, April 15, 2012

Oil Prices and Home Loan Rates

Nobody likes to pay more at the pump. But when it comes to how oil prices impact the economy...and home loan are some important factors to consider: On the one hand, high oil prices can be very detrimental to the fragile U.S. economy, as consumers have to put more money into their gas tanks–which means they have less to spend elsewhere. High oil prices are also inflationary since the added shipping and material costs apply upward price pressures on Producer or Wholesale goods that either have to be absorbed by the producer (thus hurting profits and the ability to expand or hire) or passed on to the consumer...a la a rise in consumer inflation. On the other hand, high oil prices could actually be good news for home loan rates, as the dampening effect on economic growth produces a sluggish economic environment in which Bonds (including Mortgage Bonds, to which home loan rates are tied) thrive.

Sunday, April 1, 2012

Tax Deadline Extended!

There's great news for last minute tax filers! You'll have a few extra days to file your taxes this year...thanks to a little known Washington D.C. holiday called Emancipation Day, which celebrates the freeing of slaves in the district.

Emancipation Day falls on Monday, April 16 and since the tax code says that filing deadlines can't fall on Saturdays, Sundays, or holidays, that means your tax filing isn't due until Tuesday, April 17, 2012.

Albert Einstein once noted that, "The hardest thing in the world to understand is income tax." And with all the changes that happen in the tax code each year, it's easy to see why he said so! If you have any questions about your taxes, your best bet is to talk to a CPA or tax professional. Let me know if I can refer someone to you, or if I can answer any questions at all that you may have about your mortgage. I'm always happy to help you however I can in achieving your short- and long-term financial goals.