Information and news for home buyers, especially first time homebuyers
Borrowers faced slightly higher mortgage interest rates this week due to a stronger-than-expected jobs report.
The benchmark 30-year fixed-rate mortgage rose to 4.48 percent from 4.35 percent last week, according to the Bankrate.com national survey of large lenders. The mortgages in this week’s survey had an average total of 0.36 discount and origination points. One year ago, that rate stood at 3.52 percent. Four weeks ago, it was 4.42 percent.
READ THE FULL REPORT from BankRate.com
According to the latest weekly Freddie Mac Rate Report, the average rates for a 30-year fixed-rate mortgages hit the lowest levels seen since June last week after the Federal Reserve stated they will not taper their $85 billion per month mortgage bond purchase program anytime soon.
Until the Federal Reserve does start to taper, and then stop buying bonds, expect to see low mortgage rates for some time to come. We’re going to be enjoying some very attractive interest rates well into 2014. The question is, is it going to be a 3.875% interest rate or a 4.25% interest rate? Either way, historically speaking, these are still great mortgage rates. People should be taking advantage with a new home purchase, or refinancing their existing mortgage loan.
The general market still widely believes that the Federal Reserve won’t begin talk of tapering their massive bond purchases until at least June of 2014. Keep in mind that Congress just kicked the budget ceiling down the road until February, where they are going to have to renegotiate again, so the Federal Reserve will also have to react to that budget battle too. If Congress comes up with a good long-term agreement, mortgage rates should move up, but we still anticipate under 5%.
Really, there’s no way to know until February. Until then, mortgage-backed securities are operating at a very thin range. Low mortgage rates are here today. Better interest rates, over and above what we’re seeing right now, are remote. On the other hand, worse rates than what we’re seeing right now are remote too.
With current mortgage rates for FHA loans in the upper 3% range, and Fannie and Freddie loans in the low 4% range, there really isn’t any room to lower rates further to spur the housing markets. What the county needs is jobs, and stable jobs. When people feel good about their financial situation, they have no fear buying homes.
In the market today, many homes are in need of a little tender loving care. Buying one of these properties can be a great deal, while the next one could be a money pit. The following are some tips to make sure the fixer-upper you are looking at is a great opportunity.
I’ve bought and sold homes needing repair, and I’ve learned a lot over time. A big item to consider is knowing your limits. Not everyone is Bob Villa. Know what sort of repairs jobs you can safely handle, and which ones will require a professional.
Having a home looked at by an experienced second set of eyes is paramount before buying. Many people skip this step, thinking they can save a few hundred dollars. I counter that it is some of the best money spent. Would you rather spend $300 to find out it is a money pit, or buy the house and find out later?
Walking into a home that is in desperate need to paint and carpet is one thing. Attempting to handle a home with serious foundation or structural problems is something different. Bad leaky roofs are expensive. So is completely replacing a kitchen, and replacing all the old windows. Leave these type of homes for experienced home flippers.
Homes with good basic bones that just looked dated are excellent homes for a fixer-uppers. Look for something that is habitable today. Something where you’d like to renovate, yet you wouldn’t “need” to do anything to move right in. Then over time, you can update one room at a time until finished. Smaller projects that are lighter on the budget spread over time is key.
A common big mistake is over improving a home for the area it is in. 
Putting in a $50,000 new kitchen with granite counter tops and stainless steel appliances in an older neighborhood of standard appliances and standard counter tops may look great, but you’ll never recover what you paid. Just the opposite is also true. Putting in a standard counter and appliances in a newer neighborhood where everyone else has stainless steel is also a problem
Working in conjunction with not over improving the property, make sure you set a realistic affordable budget – and expect to go over it. If your budget is $25,000 – don’t factor anything higher than $20,000. Believe me, surprises will crop up, and by the time you are done, you will have spent the full $25,000. Also get a few bids for each job. The total final cost will usually be somewhere between the low big and the high bid.
Finally, consider using the popular FHA 203k repair loan. This mortgage loans allows you to buy it and fix it all with one standard loan. There are two types of FHA 203k loans, known as full or streamlined. I suggest buyers work within the streamlined version, which allows for repairs up to $35,000.
Click here for more information on FHA 203k loans in MN and WI.
You are fully pre-approved, and actively looking for homes with a Real Estate Agent. You find the perfect home, but there are multiple offers, and one of them is cash. Panic sets in, but don’t worry.
Sellers love cash buyers for two main reasons. The first one is super obvious – quick closings. The second, but bigger scare, is any lender related issues. Is the client “really” qualified? Will the house appraise OK? Will the lender require something to be repaired? How long will it take to close?
If possible, try these tips to make you are your offer as good, or better than a cash offer.
While it has no bearing in reality, both Real Estate Agents and sellers think you are a more qualified buyer if you put more money down. So try a bigger down payment if you possibly can afford it. Interesting, the #1 best performing mortgage loan with the least foreclosures in the market is a zero down payment VA Loan.
Most buyers opt to have a home inspection done. Most official inspections find no major items that you likely didn’t see already yourself. Most buyers end up nit-picking minor little items, then ask the seller to “fix” everything. This is very annoying to sellers. Look the house over good by yourself, and then skip the official inspection.
Are you constantly being out bid? Everyone else seem to be willing to pay more? Consider looking at homes in a slightly lower price point. By looking at less expensive homes, you can be the one that puts in an offer over the asking price, and winds the deal.
All loans have closing costs. It is very common to ask the seller to pay your closing costs. The seller isn’t really paying anything, rather it is just a way for the buyer to pay the costs over time, versus paying up front at closing.
For example: If you offer $205,000 and ask the seller to pay $5000 on your behalf, the sellers net is $200,000. If you offer $200,000 without asking for anything, the sellers net is still $200,000. Unfortunately, most sellers feel like you are ripping them off when you ask for seller concessions. They add up in the sellers mind, which works against you. Try not to ask for ANY concessions, not even a “Home Warranty” (99.9% of the time you’d never need anyway).
Buying and selling a home can be very emotional. Talking to the seller about how you’d love to raise your three kids there, just like the seller raised their kids there has serious emotional pull. It goes a long way when fighting against a typically lower cash offer from someone who just plans of flipping the home.
Fighting cash buyers can be discouraging. But, just because they’re dealing in cash doesn’t mean they win. Many investors think they can low-ball with cash. Show you are super serious with these ideas, and you’ll have a winning bid!
There is some great news in real estate… The FHFA (Federal Housing Finance Agency) reported that home prices posted a 19th consecutive monthly gain in August.
On a year-over-year basis, the August report was up 8.5 percent. This means average nationwide home prices are now equal to what they were in April 2005.
We are getting there, but this report also shows that the average market level is still 9.4% below the price peek of April 2007, right before the housing market crashed.
Values increased in seven of the nine Census Divisions in August with the South Atlantic and East North Central divisions experiencing declines. The South Atlantic region, which encompasses all coastal states from Florida to Delaware, was down 0.5 percent and the East North Central (Wisconsin, Michigan, Indiana, Ohio, and Illinois) division saw prices go down just 0.3 percent.
The largest value increases were in the Mountain (Utah, Montana, Colorado, Nevada, Arizona, New Mexico, Idaho) and West North Central (North Dakota, South Dakota, Minnesota, Iowa, Nebraska, Kansas, and Missouri) divisions which rose 1.3 percent and 1.2 percent respectively.
The August 2012 to August 2013 changes were largest in the Pacific Region (Oregon, Washington, California, Alaska, and Hawaii) where homes appreciated 18.2 percent and the Mountain division with a 13.8 gain. The smallest annual increase was in the Middle Atlantic division is Pennsylvania, New Jersey, and New York, where prices were up 4.0 percent.
As values continue to rise, more and more sellers can safely sell their homes – which should help with inventory issues. It also means that potential first time home buyers really need to jump into the market to buy a home TODAY, as those gains for sellers equals less buying power for buyers.
Minneapolis, MN: The time has come to sell your home. Sadly, I still see a lot of people make these very common mistakes. Hopefully this quick article is full of tips to help you have a happy and successful sale of your home.
Sideline your Emotions: Sentimental value?? Forget it. A buyer doesn’t care how much you love the house or anything about your memories there. Be realistic. Treat the sale of your home like any business transaction.
Setting an unrealistic price. It’s important that you’re not married to your price. Most people who are do so because of emotions (see first item). Regardless of what you feel, the local market sets your price. You need to be competitive with the same or similar homes in your neighborhood in order to sell your home.
Not hiring a Real Estate Agent. FSBO, or For Sale By Owner may sound like you are saving money by not paying listing fees. More often than not, after months of frustration, you will end up with an unsold home, then listing with an agent anyway. Real Estate Agents exist for a reason. They are licensed and trained. They know how to properly set sale prices, market, and negotiate the deal with all legal requirements met. Sure, some people can do it, but the other 99% can not.
Skimping on listing photos: Photos sell homes! Everyone looking on the internet these days will “see” your house if they are searching for your neighborhood and price point. What makes them stop at your listing and want to see the house? PHOTOS! Make sure your agent takes great pictures, and that they put as many as their local MLS will allow online. It is also worth hiring a professional photographer, and isn’t very expensive
Trying to sell a dirty or cluttered home: We know you need to live in the home until it sells, but when viewing your home, buyers want to envision how their furniture would look. Cluttered houses and a “lived in” look will simply detract the average buyer. Move out clutter, put it in storage if you have to, and keep the house as shiny and spotless as possible for showings!
Hiding problems: Don’t try hiding problems with the house. Most people have an official inspection. It just wastes everyone’s time to start the process, only to have it discovered later.
Not getting pre-approved for your next house: If you are going to be buying a new home, don’t assume. Talk to a local licensed mortgage professional BEFORE listing your home. The rules have changed. You may assume you’ll be able to get a new mortgage loan, and you may be right. But knowing for sure, what possible payments will be, how much money you’ll need, and current underwriting rules just reduces one more level of stress.
By keeping these common mistakes in mind and doing your best to avoid them, selling your home should be relatively quick, and free of problems.
The Federal Housing Administration (FHA) recently announced a significant mortgage rule change that will allow some borrowers to get a new FHA loan as early as just one year after short-sale, deed-in-lieu, full foreclosure, or bankruptcy as part of their new “Back to Work – Extenuating Circumstances” program.
Potential borrowers must be able to prove that a major economic event, such as a job loss, or severe reduction in household income (20 percent for at least six months) was the main catalyst in losing their home.
Potential new homeowners will also need to document and prove their income has since fully recovered, and that their credit score are now satisfactory. Finally, potential borrowers will need to complete a one-hour one-on-one housing counseling session.
Borrowers will need to meet all other standard FHA eligibility criteria for an FHA mortgage loan.
To be deemed with “satisfactory credit,” borrowers will need to meet the following guidelines for a minimum of 12 months:
Prior to the major economic event, the borrower’s credit must have been satisfactory and in good standing.
With that all said… my company, Cambria Mortgage, will be happy to review you for approval under this new program. The first steps are:
A list of acceptable housing counselors can be obtained by calling 1 (800) 569-4287 or online at www.HUD.gov
Getting a mortgage loan? Does it feel like the underwriting process is over zealous? It is… but the reasons why are justified. During the real estate boom from around 1999 to 2007, fraud was rampant. A big reason for the fraud was that the lending industry was a bit too trusting. So today, when the industry verifies everything, it feels a bit intrusive.
I simply ask this: If you were to give a stranger hundreds of thousands of dollars, what would you ask for to be comfortable?
These days every Mortgage Application is examined very carefully for any sign of possible fraudulent activity. There are several high areas of possible fraud activities that Underwriters look for in all loan applications:
Underwrites also look very closely at the Purchase Agreement. We deal with numerous issues on the contract that Realtors may just be sloppy, or are trying to hide something. Being aware of what these Red Flags may be can help to avoid underwriting nightmares.
The above list is not all inclusive, but it gives a good idea of how closely Underwriters Look For Red Flags During The Loan Approval Process. The more aware Realtors are of what Red Flags Underwriters are looking for in a Sales Contracts, the more questions they can help eliminate, and reduce issues and closing delays.
Seems like every week I get a new client, who has been working with another lender, and suddenly, their mortgage application was denied very close to closing. A common statement they make is, how can that be, I was Pre-Approved?”
THE APPROVAL PROCESS
The answer is yes and no. Under the standard procedure most lenders follow is that the loan officer takes an application. Next the loan officer should pull credit. This should give the lender a good preview of the potential final outcome. Many lenders will give a pre-approval letter at this point, but they really should not.
IF YOU HAVE NEVER SUBMITTED SUPPORTING DOCUMENTS, YOU ARE NOT PRE-APPROVED
If the application looks good, the lender should now collect and verify your supporting documents. This includes W2’s, tax returns, pay stubs, bank statements, and other needed documents depending on your situation, like divorce and bankruptcy papers.
Upon a successful review of the application and supporting documents, your Loan Officer should be able to provide a valid Pre-Approval letter.
IS THIS A GUARANTEE?
Your Pre-Approval is not a guarantee. But at this stage, a properly reviewed application from an experienced Loan Officer is as close as you can get to knowing your application will be approved. There are many more steps between this stage and closing. Unfortunately, this is where a lot of loan applications run into trouble. Poorly trained, unlicensed, and inexperienced Loan Officers miss many important items at this stage. The list of items they miss is too long to list here. Understand that 80% of loan officers are NOT LICENSED.
UNDERWRITING
Your application will now go through a processor. That person will usually order the appraisal, title work from a title company, an IRS copy of your tax transcripts, and generally scrub the file to make sure the minimum items needed are in the file. Once everything is back, the full file goes to underwriting for review. Assuming everything was entered and done correctly up to this point, the vast majority of loans are fully approved and cleared to close.
ISSUES DURING UNDERWRITING
Surprises that show up at this stage included incorrectly calculated income, unqualified income, appraisal issues, inappropriate funds to close, and surprises on your tax transcripts, like small self-employed side jobs, or large un-reimbursed employee expenses. At this point, we even run into people who during the application process have lost their jobs!
CONCLUSION
As you can see, there are a few items that can truly pop up to kill an application that are not discovered until during the underwriting process. BUT THE VAST MAJORITY are not surprises. Most were there to be discovered at application.
10% of the success of your mortgage application is the company you chose. 90% of the success is the Loan Officer you chose. Chose wisely!
Rising home prices restoring lost equityAs home prices continue to rise, millions of home owners are regaining equity, according to date released yesterday.
An estimated 2.5 million homes went back into a positive equity position in the second quarter, meaning they are no longer underwater – that their owners no longer owed more on their mortgage than the home is worth.
According to date from CoreLogic, the likelihood that a home was underwater dropped to a level where only an estimate 14.5% of all mortgages had negative equity. This is compared to 19.7% in the first quarter of 2013.
First, people simply feel better about their overall position in life. Many consumers have the bulk of their wealth tied to the real estate.
Many people the past 5-years have wanted to sell their house, but have been unable due to being underwater. As equity positions improve, these people can now safely put their home on the market without fear of having to write a check to sell their home.
It also allows more people to refinance to today’s lower rates. Programs like HARP (the Home Affordable Refinance Program), FHA Streamline Refinance, and a VA IRRRL Streamline Refinance, have allowed many people to refinance today without an appraisal, and without having to worry about being underwater. Yet about 20% of all loans are NOT a Fannie Mae, Freddie Mac, FHA, or VA loan. If you are one of the 20%, you have not been able to refinance if your home was underwater. Improving equity allows these people to refinance, freeing up money to be spent elsewhere.
Buying real estate, especially those for first time home buyers can result in a wide variety of emotions. Fear, excitement, and a sense of being overwhelmed are many that I hear from my mortgage clients.
All real estate is local, so while in some areas, the buyers are in control, in others, the seller is in control. Regardless of the situation, negotiations skills are important. Most of the time, the actual buyer is not in direct control of the negotiations, your Real Estate Agent is. So be sure to pick a good one, and to use the following negotiation tools to get the home you want, at the price you want:
Keep your emotions at bay – One can get excited over the perfect property. Being transparent, or having a poker face with your emotion may lead to getting a better deal. If you have already become too attached to the property, you might end up compromising the deal and giving in to the sellers demands. Be as objective as possible and take control of your emotions.
Study the local real estate market – Whether you are buying through a real estate agent or you are on your own, you must have a good knowledge of how much is the worth of the properties around, especially the one which you are most interested in. Studying the market will give you a good picture if the property you like is underpriced, overpriced or just priced just right. Do not just go into the field of negotiation without having the right knowledge of what you are getting yourself into. Knowledge and sound assessment is the key.
Discover the selling motivation – Sellers sell for many reasons. Knowing why will help greatly in your negotiations. Have they been in the house for 20-years, and own nothing? Do they owe exactly what is is worth? Have the kids received the house because of a parents death and just want to dump it? Try to find out the selling motivation and use it to your benefit.
Don’t be afraid to make a low offer. Housing is the most expensive item the average person ever buys. We’ve all heard that making a low-ball offer will offend the seller. Yes, you might. Big deal. 95% of them will still negotiate on price. So don’t be afraid to start realistically low, and near the appropriate value of the home. You can always counter-offer higher.
Be prepared to walk away. Walking away is the most powerful tool you have. It may not feel like it at the time, but I promise if the numbers don’t work on this house, you’ll soon find another that you just just as much were the numbers to work.
I just about threw up in my mouth after reading this article on Bloomberg news on “Homebuilders Using Financing Incentives To Defy Price Cuts”
The article reads like free advertising for builders, but seriously lacks the true story. The article examines the “incentives” that builders are offering to home buyers who use their preferred mortgage company, and implies scare tactics that only the builders mortgage company will close the deal on time, saying “Few things are more frustrating to the homebuyer than having to push back a closing by a few days or weeks because the outside lender wasn’t ready with the mortgage.” I cry foul…
Builders are reporting record profits – No builder is giving away anything! They simply price it into the overall cost of the home, then offer teasers to lure unsuspecting home buyers into their trap. Increase the margins on the home price by $20,000 – then give a buyer a $10,000 credit for closing costs by forcing a client to pay more with “their” lenders isn’t a deal.
Most buyers would be better off telling the builder you’ll get your own financing and to cut the homes actual price to a no incentive price. Sadly, most new home buyers are blind from the glare of their shiny new object (the home) and end up smiling over the “deal” they received. Needless to say, the builder is left with a tidy profit.
REMEMBER: “There’s a sucker born every minute” – P. T. Barnum (1810–1891), an American showman.
This is why Real Estate got into trouble… Not disclosures, not loan programs, not loan officer compensation…
Rather a gimme gimme gimme… I deserve… attitude OF CONSUMERS.
Unfortunately, the lending industry was all too willing to give these folks the money too!
A commercial from the height of the boom…
In a recent announcement (FHA Mortgagee Letter 2013-25) , HUD said that while they will continue with their basic rule that most unpaid collection accounts DO NOT need to be paid off in order to obtain an FHA loan, they now WILL require that lenders consider how a creditor’s efforts to collect the account can impact the borrower’s ability to repay the loan.
When ANY ONE, OR COMBINATION of unpaid collection accounts equal $2,000 or more, the lender now needs to factor in monthly payments of 5 percent (5%) of the outstanding balance for the account into the debt-to-income ratio. If payment arrangements were made with the creditor, then that payment must be used. This is going to be a major deal breaker for many applicants.
Collection accounts for non-purchasing spouses need to also be considered in community property states (like Wisconsin). Nothing needs to be done if the aggregate balance is under $2,000.
This additional debt-to-income requirement is sure to hurt many applicants.
Any medical accounts many be excluded from the requirement.
Impacted loans are those that have case numbers assigned on or after Oct. 15, 2013.
On disputed accounts, manual underwriting is required when the total is at least $1,000. Lenders must analyze whether collection accounts or judgments were a result of disregard for financial obligations, an inability to manage debt or extenuating circumstances.
In any event, the borrower needs to write an explanation and provide supporting documentation for each account.
All of this is just more reason to make sure you are working with an experience LICENSED Loan Officer, not an unlicensed bank application clerk.
Applying for a home loan can be a stressful time, but doesn’t need to be if you follow certain rules that can unexpectedly trip up your mortgage loan approval.
Some of these tips will be obvious, while others won’t – but all of them are items that regularly cause underwriting headaches. Avoiding these mistakes will help lead to a smooth stress free home loan closing.
Dos and Donts of a Smooth Home Loan Approval
DON’T do any of these items within 90-days of application or until after closing
The biggest item left is simply this… ALWAYS tell your Loan Officer EVERYTHING. Not thinking it is important, or even straight up lying, is only going to cause trouble down the line. You’d be surprised at the checks underwriting does during the process, and the things that are “discovered”. Mention everything it to your licensed Loan Officer right away so they can help you determine the best way to achieve your home loan goals, and avoid any unnecessary delays or surprises during the process.
How long after foreclosure for a new FHA loan?Recently FHA announced in mortgage letter 2013-26 the ability to FOREGO the current three year waiting period for previous Foreclosures and Short Sales before you can qualify for an FHA Loan if the borrower had an ECONOMIC EVENT that created a hardship.
It has been brought to my attention that many real estate agents are now advertising this, WITHOUT GIVING THE FULL STORY.
Borrowers MUST MEET VERY STRINGENT guidelines in order to qualify for this EXTENUATING CIRCUMSTANCE.
Here is the link to the actual Mortgagee letter for your reference. Please read the FHA foreclosure guidelines so you understand what is required.
But there is more… Just because FHA indicates they may insure a loan meeting these guidelines, you need to understand that FHA DOES NOT DO LOANS. Lenders do loans, and you will still need to find a lender willing to offer loans under these new guidelines.
My experience tells me that very few lenders will jump on board to offer this product, so be sure to cross your T’s and dot your I’s before you get too excited about suddenly being about to get an FHA Home Loan with a recent foreclosure or short-sale.