Posts Tagged ‘lehighvalley’
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What is the Best Way to Finance a HUD Home?
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:
- The total down payment for an FHA loan is only 3.5% of the sale price. (This number may increase in the near future. The down payment amount may also change to reflect risk factors in credit score. Check with your loan officer for the most up-to-date information.)
- Debt-to-Income Ratios are generally higher with FHA loans. Buyers can qualify with 29% Front End Ratio and 40% Back End Ratio , compared with similar conventional products that limit borrowers to 33-36% on the back end. Borrowers have more borrowing power with an FHA loan.
- Example (front end): Monthly Income x 29% = Maximum PITI (principal, interest, taxes, and insurance). For a monthly income of $3, 000, that means that $870 is the maximum mortgage payment for qualifying purposes.
- Example (back end): Monthly Income x 40% = Maximum PITI (principal, interest, taxes, and insurance). For a monthly income of $3,000, that means that $1,200 is the maximum mortgage payment for qualifying purposes.
- FHA lets the buyer negotiate a 3% seller assist toward closing costs. In many cases, a borrower needs no more than 3% of the total sale price as a total cash-out-of-pocket investment. There are other alliances and programs that will let the seller pick up the whole tab. Some of these plans are under close scrutiny by the U.S. Internal Revenue Service.
- FHA is more lenient with credit issues than conventional lenders. Even bankruptcy discharges can work with FHA if good credit follows the discharge. FHA underwriters give much credence to letters of explanation about credit recitals.
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 samruta@yahoo.com. Start your search on the right at the Lehigh High Valley link.
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I should have known better
April 1, 1978. You think I would know better. It’s not that I am superstitious, but I thought to myself that a guy with a Master’s degree, married with two kids and fresh off a 4 year stint as a city planning analyst really could start a new career on any day of the year. That’s the day I started my full-time career as a real estate agent. That’s the day I thought I am my own boss, the master of my own destiny, the sky’s the limit, and the money would come rolling in. I don’t think I have to tell you the significance of the April first date. It’s not just the fact that I am a pretty gullible guy and you could tell me that the moon is made of green cheese (I prefer provolone) Let’s just say I am now 100% died in the wool credulous and make a real effort to verify every statement made that might affect my sense of awe of mere existence but also go to great lengths to dodge black cats, not to walk under ladders, get real concerned when I break a mirror, and wear the same tee-shirt and baseball cap when the Phillies are on a winning streak. This explains their early exit from this year’s playoffs, since I varied my routine and changed my apparel watching game 5. Like I said I should have known better and It’s just that I don’t want to take any unnecessary chances if confronted with quasi truths working hand in hand with the gods of dark probability.
I was fooled. Fooled into thinking that I only needed knowledge, some start-up money and if could learn how to be tenacious I could make it in this business. Well those attributes certainly are important but a little luck sure can be important. Luck in the sense of being lucky to have the right mentors, the right manager, the right company and a family that will back you all the way when you move ahead based on your gut and the fact that they didn’t have much say in the matter, and most importantly, being lucky enough to have clients that liked your work and now will recommend you to other folks.
Well here I am now. 33 years later. Survived 1980 and 18% interest rates, and now 2007 – present, the longest real estate depression since the great depression. I am lucky enough that I am still here, still selling real estate, still learning and still working with the greatest clients in the world. And of course still lucky enough to have the greatest family in the world that supports me 100%.
Oh yeh and by the way, make no mistake about it. We are in a depression in real estate. Don’t believe those talking heads in the media who are telling you that we have bottomed out and are on our way back. For every pin head who says we are out of it, there are two more who think the Apocalypse is around the corner. There are a lot of people hurting out there and they need our help. They have lost jobs, values in their home, credit and faith in our system. What they need is someone with some knowledge on how to keep their home in this market, how to refinance their existing mortgage, how to get help in credit repair and maybe someone just to listen and give them some hope. And let’s not forget the buyers out there. A lot of them are frightened to death. They have heard the bad news and the stories of never being able to save enough down money, the autocratic mortgage process and the fear of being scammed. If they are lucky, they have a trusted advisor who can navigate the barriers with them. You know people like the folks I work with, knowledgeable, tenured and ethical. But it’s going to take some time. If we are lucky enough, we might come out of this a little bit better and stronger for the experience. Knock on Wood.
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What is this Agency Stuff?
Sooner or later you are going to meet a real estate agent that you want to do business with. Pennsylvania law and most other states require that the agent sit and discuss with you “Agency”. What does that mean? It means; how is that agent going to represent you?. And before you agree to that representation you need to know about the different kinds of representation that are out there. Let’s itemize those descriptions first, and then in future blogs I will discuss each in detail.
Buyers agency Representing the Buyer
Sellers agency. Representing the Seller
Transaction agency. Representing neither party and acting as a facilitator to the transaction.
Designated agent. The Broker designates agents from the company to represent buyer and seller for a property in a particular transaction
Dual agent. Agent and Broker represent the buyer and seller for the same transaction . Client has to agree to this in writing.Get It? Yeh, sure. If you get this on the first pass you are a better human being than I am. I have been practicing Real Estate for over 30 years and it still confuses me to the point that I have to remind myself to reread the PA Consumer Notice before explaining it to a client. By the way the Consumer Notice is a document that you have to sign and acknowledge that the agent sat down and discussed agency with you. This is supposed to occur at the first “significant meeting ” where the possibility of business is going to be discussed. Whenever that happens is sometimes anybody’s guess. But you should know that it also includes phone conversations. This has been the cause of some interesting personal situations. For example, I went to a baseball game with a buddy of mine who also invited a friend of his who I didn’t know. I was introduced as Sam in Real Estate. As many of the vets will tell you, it doesn’t take long before someone in that scene will be asking “So you”re in real estate, how’s the market?…I live over in XYZ subdivision, in a 2 story colonial, what do you think my house is worth?” Or maybe its a buyer who wants info on a house he’s seen on the internet, or maybe its your listing. What do I do? Am I required to whip out the consumer notice between balls and strikes and go from stoic business professional or crazed fan as I watch my favorite player strike out again. Or how about that phone conversation for the first time caller. We have been instructed to use certain language to that customer that makes me feel more like law school instructor than a sales person who is trying to determine what your needs are. Nobody seems to have the answer for similar real life situations. But regardless you, the customer, have to sign that piece of paper because its going into a file somewhere in case the Real Estate Commission audits that Broker’s office for compliance. The fine is substantial to the agent and the Broker if it is not there. But enough of all of this legalize. Lets discuss Buyers Agency. The definition comes right from the Consumer Notice.
“As a buyer agent, the licensee and the licensee’s company work exclusively for the buyer/tenant even if paid by the seller/landlord. The buyer agent must act in the buyer/tenant’s best interest, including making a continuous and good faith effort to find a property for the buyer/tenant, except while the buyer is subject to an existing contract, and must keep all confidential information, other than known material defects about the property, confidential.”
In other words, that agent is your agent only, exclusively. He or she and their company has to go out and work in your best interest to find a house for you, Find it at the best possible price and keep all of your information private. If you sign a buyers agency contract to seal the representation, there is usually a fee. But don’t worry, just make sure the language is in there that your agent is willing to accept the cooperating fee from the other broker as payment in full for your fee obligation. Most do, but in some cases if you agree to a percentage of the sale price and the other broker is offering less, than you are on the hook for the difference. But to be fair there are some companies that provide extra services to buyers and they want to be compensated for that. That’s a decision you make but ask the questions up front. No agent worth their salt will refuse to give you a breakdown of their services. Check the link below to get a look at the full Consumer Notice and take particular notice to the duties of the agent regardless of the type of representation.
Once the agency is established be fair with your agent. He or she is going to work very hard to help you find that dream house. But the loyalty thing is a two-way street. Yes you signed a contract. But I know agents who are working night and day for their buyer but find out later that the client is out calling other companies and going to open houses without discussing it with their agent. I would say in most cases they are not purposely dodging their agent. Its more of a lack of understanding of the agent’s duties. If you are not happy with the agent’s performance, tell them or go to their Broker.
Well that’s a beginning. Next time I’ll talk about Sellers Agency. Have a good one. Leave me a comment and let me know what you think about this explanation.