Mortgages And More

HUD HOMES

In the last couple of years, foreclosure stories and statistics have dominated the news.  The heart-wrencing stories of what homeowners have gone through and losses they have sustained brough about a kind of hysteria.  This hysteria of fearing what could happen if you financed a home has prevented some from getting out there and making that purchase of a lifetime.  And yet, what the general public doesn't know, but needs to be aware of, is that these foreclosures have presented an opportunity for more homeownership with more security.

Homes that were insured by FHA, foreclosed upon and now owned by HUD are HUD REO's.  At last count in Brevard County, there were 6,885 HUD REO properties.  These homes are put back on the market for resale and can be purchased and financed through HUD's $100 down payment program.

In a nutshell, here are the features: 

•  Primary residence only
•  Appraisal provided by HUD
•  LTV with Upfront MIP cannot exceed 102.05%
•  Lender must pass clear title on HUD Repo (Final title is not required)
•  Repair escrow allowed with LTV not exceeding 110%.

How can  you find a HUD REO?  Go to HUD HOMES to find the list of available homes in your area.

When buying a HUD HOME (REO), watch out for the following 4 costly mistakes:

• Taxes: Most people over pay on the transfer taxes of their foreclosure purchase.  Most government foreclosures are exempt from paying transfer taxes.  Also, watch out for property taxes.  Although, the purchase price of the home may be low, the taxes could be more than you can afford.
• Over Bidding: HUD sets the price based on the appraised value.  If you bid over the asking price, the existing appraisal cannot be used, and a new appraisal is needed, at your cost. 
• Not Getting the Most Out of a Home Inspection:  Make sure to get a home inspection.  This will let you know what sort of repairs will be required and if you are getting in over your head.
• Not Maximizing Your Investment:  The Federal Government will allow you to include most planned repairs into the mortgage amount.  This leaves your money where it belongs...in your pocket.  So, make out a list of what yo want repairs before your home inspector arrives at the home.  Then present him with the list so that the list can be annotated by the Home Inspector.  You can then bring the list to HUD and show that HUD has under reported the problems with the home.  This can increase the loan amount slightly, but the the home will be in the condition that you prefer.

Not all lenders will finance HUD HOMES.  Hamilton Group Funding will not only do the financing for the borrower, but will walk you through the program.  Contact me for details.

Stop Complaining!  Understand the Loan Process

Have lender's tightened credit guidelines, making it difficult for even "vanila" buyers to finance a home?  From my perspective , I have to say, "No."  It seems to me they are running a tighter ship.  And, isn't this what we wanted any way to get our economy back on track?  I don't know about you, but I welcome having the foreclosure rate decrease.  The mortgage industry became diseased with senseless loans ... nonsense loans ... anyone-can-get-a-loans; and although the remedy leaves a bad taste in the mouth, it may be just what the doctor ordered to get our economy back to smooth sailing.  Between the automated underwriting system (AUS) and the extra, lender-specific guidelines (overlays), there is no question that our borrowers have proven beyond a shadow of a doubt that they deserve to be at the closing table.

Even if the medicine cures, there are alway side effects.  Having a tighter ship means longer turn times in underwriting.  The 48 hour approvals are a luxury of the past.  Although the AUS of FNMA and FHLMC are used as stepping stones, the underwriter has to review each document thoroughly, making sure each loan package is acceptable for purchase by an investor in the secondary market.  A loan package today must not only make sense, but there must be no unanswered questions. Overtime income shown on a pay stub and clarified on the IR W-2 Form with reported income being greater than the guaranteed salary requires additional proof that the overtime will continue; deposits in a bank account greater than the paycheck require explanations and paper trails; a two-year landlord history is expected in order to use rental income for qualifying purposes; a cell phone used for a business needs to listed in the phone book; and anything out of the ordinary makes for a borderline loan even if the consumer has high credit scores.

As a result of this magnifying glass approved to underwriting, more time is spent on each file, and thus the underwriting delays. We, who are in the mortgage industry, are becoming attuned to the longer than usual turn times and what appears to be excessive documentation; but the borrowers, realtors and sellers, who are just now feeling the effects, hardly understand.  It is human nature to base the present on past experience, so for a borrower who has been through the loan process previously, he is horrified at the requests made of him now.  For the most part, the borrower is honest and truthful, so when asked to provide more and more documentation to prove what he thinks has already been proven, he feels his dignity and integrity have been attacked. 

Realtors and sellers are asking, "And we need an extension to the contract because....?" The implication, of course, is that some are not doing their job.  In years past, accusations such as this could be made with some truth behind it, but now it's a totally joint effort on the part of all parties, as well as understanding the loan process as a whole.  I am a firm believe that knowledge is power, thus knowing the loan process and all the tasks and restraints involved may help the public to not take documentation requests personal, to be more prepared to apply for a mortgage loan, or to sell a home, or to educate the seller in the process.

Added to the longer underwriting times are the time restraints dictated by Truth-in-Lending laws.  Lenders have three days from the date of application to deliver the Good Faith Estimate and Truth-in-Lending disclosure, which is nothing new, but, what is new is that buyers have 10 days in which to accept the proposed estimate. Appraisals cannot be ordered until 7 days after the date of application. And even after the "clear to close" is received, redisclosures are sent out giving the borrower another 3 days to agree to the terms prior to closing.  And if the borrower requests it, the closing statement must be given to the borrower for review 24 hours before closing.  These are all time delays, but the end result is an educated borrower.

Since preparation and education is so important in obtaining a mortgage loan, I have prepared a 5 minute cartoon which will show you the steps involved in processing a home loan.  Please click the link below and watch, "There's No Place Like Home".

http://goanimate.com/movie/0sS3CwLRgnmg?utm_source=linkshare

January 1st, 2010 RESPA implemented the new 4-page Good Faith Estimate. But is it an Estimate or a Guarantee?

Page 1 defines the mortgage loan:

• Whether the rate is floating or locked,
• When the GFE will expire (10 business days from creation,
• If the rate is locked and when the lock expires,
• How many days before settlement the rate must be locked, and
• The terms of the loan:
  • If the payment can increase, and if so, how often and how much over the life of the loan,
  • If there is a prepayment penalty and the maximum amount
  • If the loan is a balloon, and if so, when it is due.

Also on page 1 is an escrow disclosure section:  The PITI (principal, insurance, taxes and insurance) payment is revealed as well as whether or not the borrower has a choice of paying the taxes and insurance directly or having them escrowed within the payment.

And lastly, the 1st page gives a summary of the settlement charges. 

As I said, Page 1 is informative and clearly defines the mortgage.  If the borrower does not understand the mortgage after reviewing this page, the borrower needs to stop here, and get more clarification.

Page 2 is divided into two sections:  A & B

• Section A is Your Adjusted Origination Charges.  Notice the title does not include the word ESTIMATE. Why? Because these charges can only change if the loan amount changes, or if the buyer did not provide accurate information to the lender or there is new information which would affect the costs, or, because of an act of God, such a natural disaster, or war.  These are called Changed Circumstances.  If there are no Changed Circumstances, the Adjusted Origination Charges cannot change.  In essence, the lender cannot charge any more for the loan than initially quoted in this section. The origination fees are guaranteed.
• Section B contains a list of all the other settlement service charges, such as the appraisal, credit report, and tax service fees, flood certification, title services, and services that the borrower can shop for such as termite inspection, survey, roof inspection, etc.  In Section B all charges may increase by an aggregate of 10%.  However, those services which the borrower may shop for are not included in the 10% if the borrower selects a servicer who is not on the lender's provider list.  Escrow deposit, interest charges and homeowner's insurance, which are disclosed near the bottom of this section, can change to an unlimited amount.  There is no cap. Finally, the  bottom line is an addition of the Adjusted Origination Charges and Other Settlement services.

After reviewing this page, the borrower will know all the charges associated with the mortgage loan. There is no guess work here. Mortgage Originators and Settlement Agents must be precise when presenting costs to the borrower.

Page 3 - This is the page I really like.  The 1st section explains to the borrower what charges can change, which ones cannot, and if they can change, by how much.

There is a trade off table which summarizes the GFE:  loan amount, interest rate, monthly payment, and estimated settlelment charges. The form explains that if the borrower chooses the same loan amount with lower settlement charges, then the interest rate will be higher. And, conversely, if the borrower chooses a lower interest rate, the settlement charges will be higher.

The bottom section of this page reiterates the terms of the mortgage and the total settlement charges to enable the borrower to compare this loan to other loans.  As a mortgage broker, I give the comparisons from different lenders to my borrowers.

Page 4 is a Settlement Services Provider Statement. This is a list of service providers, their charges, the company information, on what line the charge will appear on the Settlement Statement, and whether the borrower may have the choice of selecting the servicer.

Once a credit application with the financing property address has been received by the originator, the originator has 3 days in which to present the GFE to the borrower.  The Borrower than has 10 business days to accept the GFE by signing and returning the form.  This is important because after 10 days, the GFE will expire. 

As part of the Respa Reform, this new Good Faith Estimate was developed to not only inform the borrower, but hold the originator accountable for what is disclosed.  As a Guaranteed Fee Explanation, no one may arbitrarily make changes to the figures, thus the borrower should not expect an increase in costs at the closing table, nor claim to have never been properly informed. This is only a guess, but I would imagine the redundancy in the form is to drive home to the borrower that this is what his mortgage is all about.  The major flaw I see in the new Respa Form is the lack of disclosure of what the borrower needs to bring to the closing table.  The settlement fees quoted are all the fees whether buyer or seller or paying them.  As an added service and convenience, many of us give the borrower a copy of our worksheet which does spell out the borrower's costs.

We may not all like the new 2010 Good Faith Estimate or Guaranteed Fee Explanation, but we have to abide by the law.  This is now the universal form used by bankers and broker alike.  So, let's make the best of it and deal with it. 

Friday, November 5, 2009, President Obama signed the amendment to the Tax Credit which extends the $8,000 tax credit to first time homebuyers from November 30th, 2009 to April 30th, 2010.  This new amendment also allows for homeowners who have owned their current home for at least 5 years and are looking to relocate to received a tax credit of up to $6,500.  Income limits have also been increased from $75,000 annually for a single buyer to $125,000, and from $125,000 for a couple to $225,000.  There is also a tiered credit for income over the prescibed limits. 

FIRST TIME BUYERS, SECOND TIME BUYERS, THIRD TIME BUYERS, THIS IS THE TIME TO BUY! 

This new legislation will allow more people to purchase a home and help stop the continued downward spiral in housing prices caused by the foreclosure crisis.  As for critics who think the extension of the tax credit will cause more debt for our country.  When President Obama signed the tax credit extension into law, he stressed that this measure is "revenue neutral and will not increase the deficit". 

For information on how to apply for the tax credit, visit the National Association of Realtors website: http://www.realtor.org/home_buyers_and_sellers/2009_first_time_home_buyer_tax_credit

As always, if you have any questions or would like to be pre-qualified for a mortgage, please contact me at sublette.trish@gmail.com or call me at 321-543-4517.  I am always happy to read your comments.  Just click "comments" and leave me a message.

 

As part of the stimulus package, Congress created a refundable first-time homebuyers tax credit in hopes of helping teetering buyers take the plunge and purchase a home.  The $8000 tax credit, however, is only collectible at tax time after the purchase is made. Indeed, this is a great incentive for people who have the resources to save their down payment money.  But, for those whose income provides for them to live pay check to pay check (the vast majority), the tax credit is just a carrot that they will never reach.  

In efforts to further stimulate the economy, it was announced May 20th that the US Department of Housing and Urban Development is working on a plan that will allow FHA approved lenders to provide buyers with the tax credit cash up front. Thus, the tax credit funds will be used at closing on their home as the down payment.

Although details of the plan have yet to be revealed, the plan could be modeled after programs that are currently in place in Colorado, Missouri, New Jersey, Pennyslvania, Tennessee and Washington. These states credit "bridge loans" that allow buyers to borrow against the $8000 tax credit and then repay it with their tax refunds.

For example, if modeled after Missouri's plan, the first state to instill such initiative, borrowers can access $6,750 of the $8,000 credit for the down payments.   At closing, the borrower signs their first mortage, plus a second mortgage issued by the state.  The second mortgage is $6,750, with a $350 set-up fee.  No interest is charged if the debt is repaid by June, 2010. If the borrower does not pay off the note, it becomes a 10-year fixed rate mortgage with an interest rate one-half percentage point above that of their first mortgage.  For instance, borrowers paying 5% on their first mortgages would be charged 5.5% on the second.

My Gosh!  My head is in a whirlwind!  First came the Economic Stimulus Plan for 2009; and right behind it came the Homeowner Affordability and Stability Plan.  Is help on its way?  I think so.  The news for homeowners and soon-to-be homeowners is promising.  So, get your documents ready because now is the time to either refinance or purchase a home.

The $787 Billion stimulus bill is made up of tax cuts and spending programs aimed at, just as the name of the name of the plan implies, stimulating the US economy. One of the major benefits of the plan is a tax credit for new homebuyers. According to the plan, first-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for a tax credit of $8,000 or 10% of the value of the home, whichever is lower. Therefore, if the home you purchase is valued at least $80,000 you will eligible for the $8,000 tax credit.  If the home is valued less than $80,000, the tax credit will be 10% of the value of the home.

The $8,000 tax credit is a true tax credit. It's a dollar-for-dollar tax reduction, rather than a reduction in a tax liability. In other words, the $8,000 is not subtracted from your income before taxes are applied. Instead, the tax credit is deducted from taxes due.  So, if you were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, you would owe nothing.

The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.

The tax credit is applicable to any home that will be used as a principle residence. Qualifying "homes" include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured homes and houseboats used for principle residence also qualify. The only catch is that buyers will have to repay the credit if they sell their homes within three years.

The Homeowner Affordability and Stability Plan is twofold:

This plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. Many of the plan's details are still being worked out and will not be announced until March 4. Here is an overview of the plan's main components.

Refinancing Initiative

For those whose homes are in an “upside down” position, meaning the mortgage balance is more than the current property value, refinancing the mortgage may be possible. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.

According to the plan, "responsible" homeowners, those that have been making their payments, but are struggling to do so, can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.

As with the rest of the plan, details about this initiative will be released at a future date--including what, if any, credit score requirements will be included.

Stability Initiative

The stability initiative aims at providing help to individual families, as well as entire neighborhoods, by helping reduce foreclosures and stabilize home prices. Remember that a foreclosure in the neighborhood affects everyone – prices go down, property values are reduced.

This plan is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly. The goal of this initiative is simple: "reduce the amount homeowners owe per month to affordable levels." To accomplish this, lenders are encouraged to lower homeowners' payments to 31% of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with the Treasury Department sharing in the costs.

An important part is that homeowners who are current on their mortgages but are struggling can still apply for this program. As such, this is one of the few programs designed to help homeowners who may face delinquency soon, but are current at the moment.

This initiative also includes a number of additional elements and incentives, including an extra incentive for borrowers to keep paying on time. The initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.

In a nutshell, we should all have hope of a recovery.  This recession has been hard on all Americans.  I truly believe that the first step out of this recession is the stabilization of the housing market.  We would be silly not to take advantage of these soon to be available programs.  March 4^th is just a few days away, so pay close attention to news broadcasts and to my blog.  I will keep you posted as to what steps to take.  In the meantime, gather your documents together – 30 days of paystubs, the last 2 years of W-2’s, and 2 months of bank statements (all pages).  If self-employed, you will need the last 2 years of tax returns (all pages).