Fannie Mae and Freddie Mac underwritten conventional, FHA and VA loans account for the vast majority of mortgages chosen by buyers to finance their home purchase. While buyers have the choice on which product to use, there are some considerable advantages to FHA.
More tolerant for credit challenges than conventional loans.
Lower down payments than conventional loans.
Broader qualifying ratios – total house payment with MIP can be up to 31% of borrower’s monthly gross income and total house payment with all recurring debt can be up to 43%.
Seller can contribute up to 6% of purchase price – this money must be specified in the contract and can be used to pay all or part of the buyer’s closing costs, pre-paid items and/or buy-down of the interest rate.
Self-employed may qualify with adequate documentation – two year’s tax returns and a current profit and loss statement would be required in addition to the normal qualifying and underwriting requirements.
Mortgage Insurance Premium can be released in five years when the balance is 78% of original sales price
Liberal use of gift monies – borrowers can receive a cash gift to assist in purchase from family members, buyer’s employer, close friend, labor union or charity. A gift letter will be required specifying that the gift does not have to be repaid.
Special 203(k) program for buying a home that needs capital improvements – requires a firm contractor’s bid attached to the contract specifying the work to be done. The home is appraised subject to the work being done. If approved, the home can close, the money for the improvements escrowed and paid when completed.
Loans are assumable at the existing interest rate – assumptions require buyer qualification but are actually easier than qualifying for a new mortgage. Closing costs are lower on assumptions than originating a new mortgage.
If the rate on the assumable mortgage is lower than current rates for new mortgages, it could add value to the property.
Fixed Rate mortgages are at their lowest level for 2011 as reported in the current Freddie Mac weekly Primary Mortgage Market Survey. Many qualified buyers missed the opportunity last fall in October and November to refinance at record low rates. This may give homeowners one more chance to refinance and save money on their payments.
An important thing to keep in mind is that points paid in connection for refinancing a home are generally not considered prepaid interest and must be spread over the life of the mortgage. Some advisors suggest that you have the lender quote a “par value” loan to eliminate the points which will lower refinancing costs even though the mortgage rate will be slightly higher.
Home prices have come down 20, 30, 40% or more in the last three years and mortgage rates are lower than they’ve been in 50 years and you still haven’t bought a home. Really?
Housing affordability is over 180, an all-time high when 100 is considered good and you’re still renting. Really? Are you waiting for it to get to 200? Do you think prices and rates are going to get lower? Really?
You know it’s costing you more every month to rent than to own. Tax savings, appreciation and principal reduction lower the monthly cost of housing and yet you’d rather let your landlord benefit…Really? Have you heard that the average homeowner has 41 times greater net worth than a renter? Do you think it’s a coincidence? Really?
And have you heard that most people want a place of their own; a place to raise their family; to share with their friends; to feel safe and secure. So, you’d rather go home after working hard all day to your landlord’s home. You’d prefer to invite some friends over to your landlord’s home for dinner next weekend. Really?
You haven’t checked out whether you can actually take advantage of the best buyer’s market ever. You haven’t invested thirty minutes to find out the facts as they apply to you and your situation. Really? You’re basing a decision on national news, chat rooms and Facebook. Really?
Every market is different. Every buyer is unique. If you want a home; if you have a down payment; if you have good credit, you owe it to yourself and your family to explore the possibilities…but with a real estate professional; someone who can really show you the reasons and really give you options.
In many cases, the seller and the buyer are actually represented by their real estate agent. In those situations, there is a fiduciary relationship created that requires the agent put the client’s interests above their own.
There is generally no such relationship between buyers and lenders. Some of the housing crisis issues may have been avoided had the lenders been more concerned for the buyer’s best interests.
The following are a few warning signs that should cause a buyer to do much closer investigation:
Claims that bad credit is not an issue
Larger than normal loan charges
Rate gouging by brokers – yield-spread premium
Loans without escrow accounts for taxes and insurance
ARM loans that only go up and not down
Initial loan to secure property with plan to replace it later
As a real estate professional, I can recommend a lender who is experienced in your market and has a history of providing good service. A real estate professional can be a good intermediary between you and the lender.
“It’s impossible to get low down payment loans.” – UNTRUE!
FHA down payments are only 3.5% and VA is 0%. In some areas, there may be some 100% USDA loans available.
“It takes perfect credit to get a loan.” – UNTRUE!
There is a relationship of better rates to better credit but many issues on a credit report may be explained. The way to know for sure is to speak to a reliable lender.
“If I’ve had a bankruptcy or foreclosure, I can’t qualify.” – UNTRUE!
Credit history following a short sale or foreclosure is very important and there can be extenuating circumstances. It only takes a few moments with a reliable lending professional to find out if your individual situation will allow you to qualify.
“Getting pre-approved is expensive.” – UNTRUE!
Usually, the only expense to getting pre-approved is the cost of the credit report which could be around $35. The advantage is that you will know that you qualify for a particular mortgage amount.
“I should wait to qualify until I find a home.” – UNTRUE!
The best interest rates are only available for the highest credit scores. It can take time to qualify for a mortgage especially if there are issues that need to be corrected. It is to your advantage to start the qualifying process early in your home search.
“All lenders are the same.” – UNTRUE!
Reliable lending professionals will explain the entire process before collecting fees, quote fees up-front, have competitive products, do what is necessary to get the loan approved and close at the locked rate and terms. Ask for recommendations from recent borrowers.
“Adjustable rate mortgages are more expensive than fixed rate mortgages.” – UNTRUE!
Adjustable rate mortgages can be less expensive than fixed rates if the buyers’ circumstances warrant it. There are many variables and you need to be aware of them before deciding which type of loan to finance your purchase; the ARM may provide the cheapest cost of housing.
Buyers and Sellers need solid information to make good decisions. The agent who represents you in the sales may be the BEST recommendation for a reliable lender. The mortgage plays an enormous role in determining the overall cost of housing and you need solid information to make good decisions.
Recently, a homeowner had a burglary and part of the insurance claim was denied because they didn’t have proof of purchase or a current inventory of their personal belongings. This is something that could happen to anyone. Even if you had an inventory but it was several years old, it could cost you money.
Some homeowners who have placed an insurance claim for losses say that they realized something was missing months after they had filed. The inventory can actually serve as a guide to make sure you get compensated for all of your loss.
The best proof of purchase is to have a receipt for the item. The reality of the situation is that most people don’t keep receipts. The next best item is to have an inventory and the more details like pictures, the better.
Contact me for a Home Inventory. Once you get it completed, put it somewhere safe so you’ll have it when you need it. Saving it in the “Cloud” like Microsoft Office Live is convenient because you can acess it from any computer with Internet access.
Many homeowners are overlooking an opportunity to lower their property taxes by not challenging their tax assessment. Property values have decreased in the past two to three years and the assessment may not reflect the current market value.
Deadlines are critical and if the challenge isn’t made in a timely fashion, the opportunity to lower the assessment can be lost for the year. You’ll need tdo verify the deadlines for your area.
The process for the challenge is relatively simple and can be done by a homeowner or by professional representation. In some cases, if there is an obvious mistake, the state employee may be able to correct it without a hearing.
Check the property assessment record for common mistakes that can include the number of bedrooms, baths, lot size and square footage of the improvements. Documentation is required to verify the errors. If you have an appraisal, such as when you purchased the home, it can serve as proof of the discrepancy.
In other cases, a hearing is required before a panel of citizens who will listen to testimony from the taxpayer and a representative of the assessor’s office. Based on the documentation presented, the panel will make a ruling to lower the value, make no change or in some cases, raise the valuation.
Recently closed comparables are the most common proof presented in a hearing. Comparables should be similar in size, condition and location. A knowledgeable real estate professional can filter the results generated in a MLS search to identify the most appropriate.
I’m prepared to supply the comparables, filing deadlines and other pertinent information you need to make a challenge. Lowering your assessment will result in lower property taxes and more money in your pocket.
Most FHA loans have monthly mortgage insurance required that must stay in force until the unpaid balance is reduced to 78% of the original sales price. It would take about 10.5 to 12.7 years of normal amortization for loans with rates of 5% to 7% to reach that level.
As an example, a $175,000 home with a 5% mortgage for 30 years would have monthly mortgage premium of $163.46. This is eliminated when the unpaid balance reaches $136,500 which is 78% of $175,000. It can do that with normal amortization which would take about 10.7 years.
A faster way to reach that target balance would be to pre-pay the mortgage by making regular additional principal contributions or single lump sums. In the example used above, if a person made an additional $100 principal contribution with each payment, the 78% level would be reached in 7 years 8 months compared to the 10.55 with normal amortization.
If a person would increase their principal contribution by a little less that $300 a month, the need for the MIP would be eliminated at the end of five years which is the minimum amount of time it must stay in place for most FHA loans.
The benefits of making additional principal contributions will be to build equity faster, lower overall interest that you’ll pay and shorten the time that you’ll be required to pay the costly mortgage insurance. It will be necessary for the borrower to notify FHA when the target date has been reached if accelerating the amortization.
If you’re interested in developing a strategy to shorten the time your MIP is required on your loan, I can provide this type of analysis for you at no charge or obligation.
Whether you rent or buy, you pay for the house you occupy. You must live somewhere and there’s a price to pay for it. A simple analysis will show you whether it’s cheaper to rent or buy.
Some people don’t have any choice but to rent because they don’t have the means to qualify for a loan. But for those who do have a down payment and good credit, they actually have a choice of whether to rent or buy. In some cases, owning will cost significantly less than renting.
Rentals are in high demand in many markets and rents are going up. People who have experienced foreclosures and short sales have increased demand. The first comparison a discerning buyer needs to make is whether the house payment is lower than what they’d have to pay in rent.
The next comparison needs to consider the other benefits that accrue to an owner such as principal reduction, appreciation and tax savings. These can dramatically weigh in favor of owning rather than renting.
Tenants have made the decision to buy a home. The decision currently facing them is whether to buy it for themselves or their landlord.
You might think that a person who pays cash doesn’t have many concerns or at least not the same ones as most people. Roughly, about 9% of people paid cash for their home last year with a considerably higher percentage paying cash this year.
The first question that comes to mind when I hear someone say they want to pay cash for a home is “Do you think that you might put a loan on the home in the future?” Paying cash may affect your ability to deduct the interest on a mortgage placed on the home at a later date.
Currently, a homeowner may deduct the interest on up to $1 million of acquisition debt. Paying cash for a home establishes acquisition debt at $0. At that point, the only deductible interest would be home equity debt which is limited to $100,000 over acquisition debt. You can get more information about this from IRS Publication 936.
On the surface, paying cash certainly seems simple but it may have consequences later. As a Residential Finance Consultant, I can point out the areas when advice from a tax professional is in order.
Photography & Information Courtesy of: Photography Magic, Lawliss Creative, Scherrer Photography, Jon Brunk Photography, Getty Images, iStock and the
following Chambers of Commerce's and Visitor Bureau's from: Bellingham/Whatcom County, Birch Bay, Blaine, Bow, Everson-Nooksack,
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