I think that there are still challenges in today’s real estate market in either buying or selling a house. Suffice it to say that there are a lot of folks who owe more than what their home is worth (“underwater”). There are enough people who have credit problems because of the recession that started in 2007. Lots of recent college graduates are strapped with student debt and no jobs and living at home. The economic “recovery” has begun but it is taking forever. And certainly the banks and mortgage companies have not eased up that much on underwriting criteria for buyers. An average credit score to get a conventional mortgage is still almost in the mid 700s. FHA and VA are still options but I think we need to do a better job in spreading the word on those programs and how they work. Plus there are concerns regarding FHA continuous funding. FHA mortgage insurance premium is the highest of any program and never goes away until you finally sell.
I would speculate that with the uncertainty of the economy, that customers are just reluctant to take the risk in owning.
I’ll offer a few alternatives that you might consider in getting into the housing market. I mean you have to live somewhere. Might as well be a place of your own. Here are three for your consideration.
1. Rent with an option to buy. Probably the most well-known and popular. However it can be the most misunderstood program. An “option” is exactly that. You enter into a lease to rent a home and you agree with the owner that at some point in time you will, or will not, exercise the option to buy the house at an agreed upon price. You may or may not have put up any money toward that option at the lease signing. You and the landlord may have decided that a portion of the rent goes toward the purchase price or the option. Just remember if you don’t exercise the option, you just remain a tenant and have no ownership rights. Whether you get any money back is determined by the terms of the option agreement.
2. Lease purchase , land contract or installment contract. Buyer and Seller enter into an agreement of sale for the purchase of property. The sellers maintain the title to the property during the term of the contract and the buyers have an equitable interest. A note of caution here to both parties. If the seller has an existing mortgage on the property there may be and probably is a “Due on Sale ” clause in the mortgage documents. This will indicate that if any transfer of equity occurs then the entire loan will become due in full immediately. Depending on the size of the existing loan, this could cause some major problems for both buyer and seller. Any real estate agent worth their salt will check all recorded documents before proceeding with a proposal. A good real estate attorney needs to be involved for each party. If there is no mortgage , then the owner can act as the bank and transfer title to the buyer . Depending on any down money and credit obligations the equity build up is subject to negotiations at the time of the offer. Again I would recommend a good real estate attorney get involved with any preparation for both buyer and seller.
One nice benefit of this type of transaction is that the buyers can get the tax benefits of home ownership.
3. New program. Just heard about this one. A company buys the home for you and the client enters into an agreement of sale to purchase the property within a certain period of time, i.e 5 years. You put up a down payment of 5 or 10% and pay a 3% admin fee to the company at the time of occupancy. You get the house and its yours to live in as a renter at an agreed upon monthly rent and purchase price. The big difference between this and the rent with option is if you do not get a mortgage by the end of the term you get your down payment back. They keep the 3%. You also agree to a 2-3 % annual rent increase during the term. Again this program is for people who have not been able to qualify for a normal mortgage because of unusual catastrophic circumstances. Lost a job, unusually high medical bills, and then lost a home through foreclosure or just had some hard times and are trying to work yourself back. That’s why you agree to a 5+ term. And of course if you can a mortgage sooner, there is no prepayment penalty. There are some additional features. Give me a call and we can discuss some additional details.
A few “options” to think about. Just leave me a comment. Contact me via Facebook, Linkedin or Twitter or the old fashion ways of email, firstname.lastname@example.org or cell phone 6107372310
Did you know that you need to have good credit to apply for a mortgage? Did you know that you have to have a job to get a mortgage? Did you know that you have to have a down payment to get a mortgage? Surprised??? Well you might be if you are one of those folks who witnessed and participated in the debacle that occurred in 2007-2008.
Yes, it was loose lending. It seemed like anyone could get financing if they needed it. I won’t go into actual cases right now. I’ll save that for another blog or a beer at a local gin mill. Suffice it to say, it was nuts. There were companies that were even giving home equity loans in addition to first mortgages at a closing with a credit card to top off the craziness.
Well now we have Dodd-Frank which are new rules and regulationss passed by Congress and signed by the President to govern how lenders must apply stricter standards for getting new mortgages by a consumer. Dodd-Frank also established the Consumer Finance Protection Bureau, to make sure that the financial mess doesn’t occur again. It provides an avenue for a consumer to file a complaint against a lender if they feel they are being cheated or question how the process is being utilized as they attempt to get a loan of any kind. You can visit them at their web site at http://www.consumerfinance.gov/The goal is admirable but they have no oversight. They are basically an independent organization working through the Federal Reserve, which has no Congressional oversight. A problem I think which needs to change in a hurry. They have to be responsible to somebody!
So what can you expect if you need a mortgage.
1. A down payment. As little as 3 1/2 % down with an FHA mortgage. A credit score minimum of 620, depending on the lender. Conventional loan, 5% down with a minimum credit care in the 700+ area, again depending on the lender.
2. You need to prove your income. W2’s are fine but if you are self employed and are dealing with a lot of cash and you have large write offs, you are going to have to submit copies of your most current income tax filings. I can’t help you if you are showing very little income or substantial losses. The lenders are not going to buy it.
3. All funds have to be tracked even if they are gifted funds. So if uncle Louie is going to give you the money, the lenders are going to want proof that he didn’t borrow it from somebody. You need to get into your account at least 3 months before you need to verify it with a lender. If you are a veteran you can borrow everything including all of the down payment. And by the way thanks for your service. Love you folks.
4. Debt load. The old 28% of your gross monthly income towards principle, interest, insurance and taxes is probably a safe benchmark to determine a monthly maximum payment. You can safely add another 8% of your income to other debt and figure you can still qualify. In some cases lenders will allow you to go as high as 41% on the back end to qualify. I see this mostly in Government loans. But be conservative. You have to make the payment. Talk to me and I’ll give you a range of loans that you can afford based on the type and down payment.
Really what has occurred is that we have returned to a normal mortgage lending situation. A consumer really has to be able to afford the loan. And other than veterans, one really has to have some”skin in the game”that is, a down payment. No more interest only loans, no negative amortization loans, where you are interest short on the payment. No more no documentation loans where all you had to do is tell the loan officer how much you earned without proving written verification. In other words, the truth is back and they are checking to make sure of it. If you need some help in navigating some of these new old rules for getting a loan before you start your home shopping , then give me a call at 6107372310. I’ll be glad to help you. If you are in the market for a home and you meet an agent that does not ask you pre qualifying financial questions and tries to pass you off to a mortgage lender quickly, I would doubt that the agent has the knowledge or the desire to really engage you and provide you with sound financial advice. Keep searching.
I don’t know, I just kind of gave up last fall. When someone told me it was hard to keep a blog up and have a fresh ideas day after day, I knew it was hard but I didn’t think I would go into brain freeze almost permanently. Well I did. I thought to myself I have to become more aggressive and try to get some reaction from folks who read this stuff. Well that didn’t happen and I thought I might as well get on to bigger and better things. I really don’t know what that means either.
In the final analysis I guess I had to ask myself the question; was I doing a blog for you or for me. For me, because at one time I thought I actually enjoyed writing . For you because I hope I could drum up some business while giving you some helpful information.
At this point I’ll just try to write about some things I am passionate about, which is cathartic for me. Maybe you will join in and let me know how you feel, but if you don’t that’s okay too. Because now I don’t feel the pressure to perform for anybody else but me.
So here goes….. Since I last wrote we have had the reelection of the President, the murder of 26 folks, 20 of whom were kids, a Pope resigned, avoided a Fiscal Cliff, did not avoid a Sequester, watched the rebound of the housing market begin, (which by the way I still don’t trust), QE infinity courtesy of the Fed and saw the Unemployment rate drop to 7.9%
Maybe its the Jesuit training in me but its smoke and mirrors to me. How the heck can we have an almost $17 trillion dollar deficit and growing each day, printing money like its drug to an addict and 1-2% Interest rates set for the next several years, and listen to all of those folks in Washington saying things are getting better. Who is going to pay for all of this insanity? You and me folks and our kids and grandchildren. That’s because the boys and girls in DC can’t get along. The cost of servicing that debt will eventually eclipse the total GDP of the entire country.
One thing is for sure. Regardless of your feeling of the housing market, the freaking mortgage rates are at an all time low. A $100,000 mortgage at 3.5% not including taxes and bank fees will cost $449 a month. Try renting for that kind of monthly payment.
Foreclosures are down, that’s good. Short sales are up, that stinks. No matter what the banks tell you, they still take months and I have had more than one buying client walk away. Because foreclosures are down and short sales take a while, we have a decrease in available housing. So Buyers beware, the sellers that are not underwater are going to start raising their prices. It’s already happening. And if Uncle Ben ever stops buying bonds and mortgages, rates will go through the roof.
Anyway, I feel better, that was a good start. It’s like when I talk to myself in the shower. It’s probably the most creative time for me.
I just need someone to turn up the temperature of the water.
Well lets see, I can sit around thinking about the Presidential election and come up with some esoteric, ideological baloney that no one will believe anyway or actually give you some interesting real estate investment information that might even make you a couple of bucks if you act to buy some property.
Well I picked this up from our friends at the National Association of Realtors. Seems like Fannie Mae is going to give a break to so called “Mom and Pop” Investors. You can now purchase up to 20 properties now and get a Fannie approval. The underwriting for those mortgages…. well that is a whole separate article that we can discuss later and that I would place under the heading of “Miracles in La La Land”. Oh ye of little faith. But what the heck. Give me a call if you have any questions. Good stuff.
Visit houselogic.com for more articles like this.
Copyright 2012 NATIONAL ASSOCIATION OF REALTORS®
Consider the Emotional Side of Downsizing Your Home
By Salvatore Ruta
People downsize for a variety of reasons, from the “empty nest” syndrome to convenience or hardship. Here are a few things to consider as you contemplate moving to a smaller home.
“Before any move, focus on how you want to live. People don’t think enough about why they’re moving,” said Mary Jo Zeller, director at Gero Solutions, which manages moves for seniors. “Increasing numbers of downsizers these days want to exchange the worry and expense of maintaining a large property, for the luxury of low maintenance and the opportunity for more leisure time.”
Emotional ties to the family home is one of the main barriers to downsizing, but equally, deciding on where to move to, and what style of property will be best suit, can be just as daunting a prospect.
During the downsizing process you may be surprised at how attached you have become to your possessions and how difficult it might seem to part with them. A good tip is to start getting rid of your items a few months before your move so donate, recycle, e-bay and give away some of those items you really don’t need anymore. This will make the move much easier and your smaller home less cluttered.
Decorators recommend sketching floor plans for your new home to see where all your current furniture will fit. You shouldn’t wait until you move in to discover that there’s just no room for that armoire or extra stools.
For those already on the top of their property ladder, they may find that reversing course and heading down is the right decision for them.
These guidelines can be a little tedious to work through, but if there is any strong advice that I can offer, its to plow through the paperwork and work with an experienced real estate agent and mortgage officer. If you do, and you are looking for that Lehigh Valley home for sale you have a great chance to get the home of your dreams.
FHA underwriters have a great deal of discretion when they decide who will be approved and who will not be approved for loans. They are allowed to use compensating factors to offset conditions when a borrower’s profile falls outside general loan parameters. Any compensating factor used to justify mortgage approval must also be supported by documentation.
The table below describes the compensating factors that may be used to justify approval of mortgage loans with ratios that exceed FHA benchmark guidelines.
COMPENSATING FACTORS BENCHMARK GUIDELINES
|Compensating Factor||Guideline Description|
|Housing Expense Payments||The borrower has successfully demonstrated the ability to pay housing expenses greater than or equal to the proposed monthly housing expenses for the new mortgage over the past 12-24 months.|
|Down Payment||The borrower makes a large down payment of 10 percent or higher toward the purchase of the property.|
|Accumulated Savings||The borrower has demonstrated· ability to accumulate savings, and· a conservative attitude toward using credit.|
|Previous Credit History||A borrower’s previous credit history shows that he/she has the ability to devote a greater portion of income to housing expenses.|
|Compensation or Income Not Reflected in Effective Income||The borrower receives documented compensation or income that is not reflected in effective income, but directly affects his/her ability to pay the mortgage.This type of income includes food stamps, and similar public benefits.|
|Minimal Housing Expense Increase||There is only a minimal increase in the borrower’s housing expense.|
|Substantial Cash Reserves||The borrower has substantial documented cash reserves (at least three months worth) after closing. The lender must judge if the substantial cash reserve asset is liquid or readily convertible to cash, and can be done so absent retirement or job termination, when determining if the asset can be included as cash reserves, or cash to close.Funds and/or “assets” that are not to be considered as cash reserves include· equity in other properties, and· proceeds from a cash-out refinance.Lenders may use a portion of a borrower’s retirement account, subject to the conditions stated below. To account for withdrawal penalties and taxes, only 60% of the vested amount of the account may be used. The lender must document the existence of the account with the most recent depository or brokerage account statement. In addition, evidence must be provided that the retirement account allows for withdrawals for conditions other than in connection with the borrower’s employment termination, retirement, or death. If withdrawals can only be made under these circumstances, the retirement account may not be included as cash reserves. If any of these funds are also to be used for loan settlement, that amount must be subtracted from the amount included as cash reserves. Similarly, any gift funds that remain in the borrower’s account following loan closing, subject to proper documentation, may be considered as cash.Note: Reserves from retirement accounts and gifts as described above may be considered as cash reserves when scoring the mortgage application through TOTAL.Reference: For information on acceptable sources of cash reserve funding, see HUD 4155.1 5.B.|
|Substantial Non-Taxable Income||The borrower has substantial non-taxable income.Note: This applies if no adjustment was previously made when computing ratios.|
|Potential for Increased Earnings||The borrower has a potential for increased earnings, as indicated by job training or education in his/her profession.|
|Primary Wage-Earner Relocation||The home is being purchased because the primary wage-earner is relocating, and the secondary wage-earner· has an established employment history· is expected to return to work, and· has reasonable prospects for securing employment in a similar occupation in the new area.Note: The underwriter must document the availability of the potential employment.|
I have worked with several good bankers and mortgage pros over the years. If you want to consider a home purchase, my suggestion is to start with the financing. With a credit approval and estimate of home purchase in hand, you will be way ahead of others in a similar credit situation. Email or call me for a recommendation.
What Is the Best Way to Finance a HUD Home?
FHA financing is the best way to finance a HUD Home for most buyers.
FHA has certain advantages over conventional financing:
HUD Homes offered with FHA financing offer special incentives to buyers. HUD Homes eligible for FHA 203(b) financing have reduced closing costs because there is NO APPRAISAL fee. Lenders are required to use the appraisal that HUD has on file if the appraisal is less than 150 days old. (If you sell a HUD Home near the end of the 150-day window, you can make a written request to HUD to extend appraisal validity 30 days, to 180 days. That request must be in writing two weeks before the 150 day appraisal expiration date.)
Keep in mind an important fact about FHA financing for HUD Homes:
FHA will only finance a maximum loan amount that corresponds to HUD’s asking price. If a buyer is inclined to “bid up” a property and finance that property with FHA financing, he will have to make up the difference between the asking price and the bid amount with additional down payment monies.
For instance: A buyer expects that there will be competing bids for a house at 123 Main Street. HUD’s list price is $85,000. The buyer is confident that the real value of the property is closer to $100,000. He bids $90,000. His down payment will increase from 3.5% of $85,000 ($2,975 down payment) to that amount PLUS an additional $5,000 ($6,912 down payment).
I know that I mentioned this in my last blog, but here is a good primer on searching for a loan for your new home. Click here for the video.
Remember if you want a list of already approved HUD Homes or have in mind a conventional purchase using FHA financing, give me a call at 610-737-2310 or email me at email@example.com. Start your search on the right at the Lehigh High Valley link.
Can I Bid Online for a HUD Home?
So you found the home of your dreams. Well you can finance it a couple of ways; get a mortgage, ask the sellers to lend you the money or pay cash. Which one of these alternatives do you think you would use? I am not being a wise guy. A friend of mine who runs an upscale development told me yesterday that she has made 3 sales this month so far; all cash and all over $500,000. Maybe the market is coming around. What do you think?
When you are ready to make an offer on a HUD home, that is, one that is owned by HUD, you need to use a Real Estate Agent.
I don’t know where real estate buyers get the idea they can place a bid on a HUD Home without a real estate agent.
Buyers cannot bid for HUD Homes online at HUDHomeStore.com
The only way to place a bid is to work with a real estate agent who works at a HUD approved real estate brokerage. (Translation: That’s me!)
Buyers are NOT able to submit bids on their own behalf.
If you are going to make an offer on any home but it is not HUD owned you do not have to use a real estate broker unless it is listed by a real estate broker.
A real estate agent will be glad to walk you through the procedure in submitting a bid for your home.
Here is another closed captioned video on Shopping for the loan.
Don’t forget, If you want to find some homes to start your search, click on the link on the right side blog bar on “Finding a home in the Lehigh Valley.
email me at firstname.lastname@example.org or call me at 610-737-2310
There are numerous resources out there to guide one through the buying process for an FHA HUD home. Wether you are comtemplating a resale home, or a foreclosure. The following video which is closed caption provides some good basic information in starting your search. Then we will followup with an FHA Loan Checklist.
Buying an FHA HUD Home (Closed Caption)
FHA Loan Checklist
Here is a list of documents you will need to apply for an FHA loan:
Can I Build the Cost of Repairs Into My Mortgage?
The FHA 203(k) Streamline loan product is intended to assist homeowners with basic repairs costing up to $35,000. (There is no minimum repair cost threshold.) It is designed to be an easy-to-use program for uncomplicated rehabilitation and/or improvements for which plans, consultants, engineers, and/or architects are not required. (More complex improvements are handled with the FHA 203(k) program that is described in another blog post.)
Use of the Streamline (K) program is limited to properties with the following work category items:
Repairs must comply with all local codes and ordinances and the borrower and/or contractor must obtain all required permits prior to the commencement of work.
Any questions? email@example.com or 610-737-2310