Category — Home Financing

You want to buy and you have heard that home prices are really low and there are some good deals out there with all the foreclosures and short sales.  Perhaps you have also listened to some scary advice from TV financial pundits who are saying not to buy right now because prices are going to drop even more . . .and the economy is in bad shape, and Wall Street isn’t doing so well, yada, yada, yada.  Here are some things I want you to keep in mind:

1. The real estate market is LOCAL!  National TV personalities are speaking to the whole country and can’t possibly say anything worthwhile for any particular local market.  Also, they are there to get ratings and if they can say things that are inflammatory and perhaps controversial (like one who I won’t name who told people to stop making payments on their mortgages – yikes!) more people tune in and the networks are happy.

2. Home prices may or may not come down – no one really knows that for sure.  What I do know – home prices are the lowest they have been in years.  It’s like a clearance sale at the mall!  In time prices will go up – how do I know this?  Because history is a good yardstick and historically the price of homes is up/down/up/down/up like a wave.  It makes much more sense to buy when the prices are low – not when they are high!  Problem is, if you think you can time the market, you won’t know when it has hit bottom until it starts going up again – by then it will be too late to get the lowest price.

3. Mortgage rates are at jaw-dropping historic lows.  This is the one single most important factor in home affordability.  With rates this low, buyers have incredible purchasing power.  You should know that for every 0.125% rise in the interest rate, the purchase price will drop by 1.45% to keep the same monthly payment.  Wow.

So tell me now. . .why are you waiting?

Fannie Mae is offering 3.5% of the purchase price in closing help for buyers on all HomePath properties.  HomePath homes are foreclosures which sometimes have been updated with fresh paint and carpeting.  Other incentives are:

• only 3% down
• no appraisal fee (savings of up to $450)
• no mortgage insurance (savings of approximately $240 on a loan amount of $250,000)

This program is available only for a limited time:

• offer must be submitted on or after April 11, 2011
• settlement must occur on or before June 30, 2011
• only available to buyers who will be living in the home – owner/occupants

Fannie Mae has a great program that is worth considering if you are thinking of purchasing a home before the end of the year.  

Check out these incentives:

• 3.5% toward buyer’s closing costs
• loans up to the jumbo conforming limit (which varies by region)
• 3% downpayment for owner-occupied homes
• downpayment can be from your savings; a gift; a grant; or a loan from a nonprofit organization, state or local government or employer
• no appraisal fees (lowers your closing costs)
• no mortgage insurance (lowers your monthly payment)
• available for investors (10% down payment)
• eligible for HomePath Renovation mortgage
• credit scores as low as 620 FICO
• fixed or adjustable rate options

This program is only for HomePath approved properties.  To search for a HomePath home, visit http://www.homepath.com.  If you see something that you like, just give me a call - I’ll be happy to show you any HomePath or other property you are interested in.

So here you are a few days before settlement -the movers are scheduled, the utilities switched over in your name and the post office has the order to forward your mail – a call comes in from your lender: OOPS!  Your loan is not approved and that gorgeous home that you and your agent negotiated so hard to get at an awesome price slips away. . .

Unfortunately, this scenario will become more common with Fannie Mae’s new Loan Quality Initiative that requires lenders to run a borrower’s credit score a second time a few days before closing along with other last minute verifications before final loan approval is granted.  If there’s been a dip in the credit score (perhaps the borrower took out a new credit card) the lender will be required to delay closing, ask for more down payment, increase the interest rate, or at the worst – cancel the closing.

Many lenders have already been running these last minute verifications – the difference now is that Fannie Mae requires that all lenders do so.

Here are 7 tips for consumers who are in the process of buying a home and want to settle on time:

1. Don’t change your employement status

2. Don’t make major purchases (car, furniture, home theater, vacations, etc.)

3. Don’t increase your credit card debt or miss any payments

4. Don’t change bank accounts or make undisclosed large deposits

5. Don’t apply for a credit card, co-sign a loan, or make a credit inquiry

6. Don’t spend money you have set aside for closing – not any, not ever

7. Don’t delay in providing all paperwork asked for by the mortgage company

SDLP (Settlement Downpayment Loan Program) has received new funding, and will go live in July!

Not too many programs out there that give home buyers money for down payments:  The

This program provides for $15,000 to $40,000 (income dependent) in down payment and closing cost help to qualified buyers who are purchasing in Howard County.  Also, you don’t have to pay it back unless you sell or refinance.

Hurry and call now for a referral to a lender who can take your application for these funds – just like the last batch of money, this too will run out!   

Image by bredgur via Flickr

A few years ago banks would give a loan to just about anyone that applied for one – the rules were lax or non-existant.  You could get a loan by just stating your income and without verifying that was in fact what you earned!  Many other loans were made with no documentation from the borrower whatsoever.  While these types of loans were nice for the self-employed and others who have difficulty proving their earnings, they became known as “Liar Loans” because they almost asked the consumer to lie so they could qualify for a bigger, better house.

So now we’re seeing short sales and foreclosures everywhere.  People just got themselves in too deep to dig out.  If they needed to sell, prices dropped well below what they owed.  When they lost a job, all of a sudden that house payment was too much to handle.  Or sometimes it was an adjustible rate mortgage that adjusted to way more than they could pay.

What does all this mean to us today? It means that the underwriters who approve loans for mortgages have become very, very careful and the standards have tightened up to such a point even well qualified buyers can have difficulty getting financing, or conditions are put on loans at the last minute that delay settlement until they can be met.

Consider:

1. Credit Scores (FICO) – in 2006 you could get into a home with a 680 FICO score.  Today the magic number is 740.  Loans are made if credit scores are lower than this, but they come at a hefty cost in interest rate, or points.

2. Anything that looks “iffy” can send loan approval into a tizzy – underwriters are scrutinizing everything – each deposit into your bank account, withdrawals, and anything else that catches their eye.  Loan officers have to verify, re-verify and verify again.  Soon Fannie Mae and Freddie Mac loans will require the lender to run the borrower’s credit score 3 days before settlement – better hope that score didn’t dip too far in the 30-60 days from loan application!

3. Lending guidelines are changing so fast that lenders can’t keep up with them.  If a buyer was considering a particular loan a month ago, it may no longer be available, or the parameters have changed to a point they would no longer be able to get that loan.  Sometimes these changes happen the day of settlement – end result: no loan, no closing, no house!

4. Condos and any attached home (townhome, rowhome, duplex) that is part of a PUD (Planned Unit Development) that has an HOA or Condo Association has additional requirements that must be met before the loan is funded.  While all of this is certainly do-able, it just makes the process longer and more arduous.

5. Appraisals can be tricky after the Home Valuation Code of Conduct changed how appraisals are ordered and completed. Most lenders still use a company that employs appraisers who are knowledgeable in their region, however, once and awhile an appraisal will come in way under where it should be – for whatever reason – and that can derail a purchase.  Other times the appraiser will tag repair items in the home that must be completed before the buyer can get their loan (mostly with FHA and VA loans).

About now you’re probably thinking “no one can buy a home!”  But that isn’t true.  It’s definitely harder now and there are a few more hurdles to clear, but people get loans and buy houses all the time.  They have great credit (over 740 FICO), have a small amount of debt, have stable employment, and are bringing some cash to the table for the down payment.

But the most important thing they have is a good Realtor® to guide them through the hoops to home ownership.