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Lauren Schenke

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February 2012

FHA financing is about to get more expensive…

FHA Mortgages are considered one of the best ways for first time home buyers to purchase a home. The minimum required 3.5% down payment is smaller than that of conventional loans, and the credit and income requirements are slightly looser than conventional financing. The rates are usually slightly better and it’s a great way to get into a property. That being said, the lower down payment is riskier for lenders since the smaller down payment means less vested interest in the property by the buyer. Just think about it this way…wouldn’t a buyer who put 20% down towards their home purchase be more likely to make their payments than someone who put down only 3.5%??

This is why FHA financing has mortgage insurance, which is insurance on the loan to make sure that the buyer will continue to make their payments. Starting April 1, this insurance amount is about to increase, and FHA mortgages will be more expensive to use.

The up front mortgage insurance will increase from 1.0% of the purchase price to 1.75% of the purchase price. This can be rolled into the mortgage over the life of the loan, but will add more to the monthly payment. The monthly mortgage insurance is increasing from 1.15% to 1.25%. This will also add costs to the monthly payment. Both of these additions will make it more difficult for buyers to qualify for as much of a mortgage as they would have prior to April 1. It may very well be time to consider conventional financing….

For more information, check out a great article on CNN located here.

Mortgage rates are low low low….

Every time I think mortgage rates can’t possibly go even lower, they continue to surprise me. Here’s a great visual for you to see exactly what rates have been doing since 2000. It’s a great time for first time buyers, investors, and all buyers to get in the market or refinance their existing mortgage. If you need referrals to some of my favorite lenders, please check out my “vendor” tab on this site…and then start saving money!

 

Buying a Home After a Short Sale or Foreclosure

I met yesterday with one of my favorite lenders, Brad Brockett at Summit Funding, and we were chatting about life after a short sale or foreclosure. I was pleased to hear that the timeline isn’t nearly as dire as I thought it would be. Here’s the breakout as it currently stands with today’s underwriters:

Life after a Short Sale or Foreclosure

  • The general rule of thumb – for FHA guidelines –  is a waiting period of 3 years after a short sale or foreclosure before the buyer can purchase a primary residence.
  • This time period can possibly be reduced by 1 year due to events such as a major illness or job loss. Divorce and reduced work hours don’t typically count towards this reduction.
  • Buyer needs a minimum of a 640 credit score…a 620-640 may be possible but the lender may broker the loan to a different company.
  • If the buyer is using a down payment assistance program, the lender will likely require a minimum of a 640 credit score.
  • These requirements could qualify you for FHA financing. Conventional loans would likely require a 5 year waiting period to qualify.

Life after a Bankruptcy

  • The general rule of thumb – for FHA guidelines –  is a waiting period of 2 years after the discharge of a bankruptcy before the buyer can purchase a primary residence.
  • The other requirements are similar to the short sale/foreclosure guidelines above.

 

As you can see, there will probably be many buyers coming up in the future who will soon qualify to buy again! If you’re interested in talking with a mortgage lender about your qualifications, check out my “vendor” page for some great references! These lenders can help you through the mortgage process…once you are pre-approved and ready to look at homes, I’m here to help! Good luck!

Rate on 30-year mortgage rises to 3.95 percent

By DEREK KRAVITZ
AP Real Estate Writer
Published: Thursday, Feb. 23, 2012 – 7:06 am

WASHINGTON — The average rate on the 30-year fixed mortgage jumped after standing pat for three straight weeks at record lows. But the rate stayed below 4 percent for the 12th straight week, keeping home-buying and refinancing attractive for those who can qualify.

Mortgage buyer Freddie Mac said Thursday the rate on the 30-year loan rose to 3.95 percent. That’s up from last week’s rate of 3.87 percent, the lowest since long-term mortgages began in the 1950s.

The average on the 15-year fixed mortgage rose to 3.19 percent from 3.16 percent. It hit a record low of 3.14 percent three weeks ago.

So far, low rates have done little to help the housing market, which is slowly improving. Few people can qualify for the rates and many who can have already done so.

The four-week average of home purchase applications dropped in late January and February while refinancing is mostly flat, according to the Mortgage Bankers Association. Refinancing now makes more than 81 percent of mortgage activity.

But the housing market is flashing signs of health ahead of the spring-buying season. Sales of previously occupied homes are at their highest level since May 2010. More first-time buyers are making purchases. And the supply of homes fell last month to its lowest point in nearly seven years, which could push home prices higher.

The job market is also improving, which is critical to a housing rebound. In January, employers added 243,000 net jobs – the most in nine months – and the unemploymentrate fell to 8.3 percent, the lowest level in nearly three years.

Frank Nothaft, Freddie Mac’s chief economist, said the housing market is gradually starting to pick up. Still, home sales remain weak and it could take years for the market to fully return to health.

To calculate the average rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week.

The average rates don’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fees for the 30-year and 15-year loans were unchanged at 0.8.

For the five-year adjustable loan, the average rate fell to 2.80 percent from 2.82 percent, and the average fee fell to 0.7 from 0.8.

The average on the one-year adjustable loan fell to 2.73 percent from 2.84 percent, and the average fee was unchanged at 0.6.

Read more here: http://www.sacbee.com/2012/02/23/4285459/rate-on-30-year-mortgage-rises.html#storylink=cpy

State AGs, feds reach $25 billion mortgage settlement

Last Thursday, the nation’s five largest mortgage servicers agreed to a landmark $25 billion settlement with a coalition of state attorneys general and federal agencies. The settlement addresses past mortgage loan servicing, foreclosure abuses and fraud, provides substantial financial relief to borrowers harmed by bank fraud, and establishes significant new homeowner protections for the future.

The joint state-federal group announced the agreement with the nation’s five largest servicers: Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup, Inc., and Ally Financial, Inc. (formerly GMAC). Collectively, the five banks service nearly 60 percent of the nation’s mortgages.

Under the agreement, the five servicers agree to:

  • Commit a minimum of $17 billion directly to borrowers through a series of national homeowner relief effort options, including principal reduction. Servicers will likely provide up to an estimated $32 billion in direct homeowner relief.
  • Commit $3 billion to an underwater mortgage refinancing program.
  • Pay $5 billion to the states and federal government ($4.25 billion to the states and $750 million to the federal government).
  • Provide homeowners with comprehensive new protections from new mortgage loan servicing and foreclosure standards.

Additionally,

  • An independent monitor will ensure mortgage servicer compliance.
  • States can pursue civil claims outside of the agreement including securitization claims as well as criminal cases.
  • Borrowers and investors can pursue individual, institutional or class action cases regardless of agreement.

What exactly IS the status “Short Sale Contingent”?

I often get asked, “What exactly does ‘short sale contingent’ mean in MLS?” Great question.

First of all, let’s start with answering the question of what a short sale is. A short sale is where a homeowner is under water in their loan(s), or in other words, their loan(s) total MORE than what their home is currently worth. This homeowner is attempting to sell their home at a LOSS to the bank. For this short sale to be accepted, it is completely up to the bank as to whether or not they will agree to accept the loss and sell the home.

One of the main qualifiers of an approved short sale is that the homeowner must have a valid hardship. A valid hardship would be something tangible that affected the homeowners’ income. It could be a job loss, an expensive medical issue, a death, a divorce, or something along these lines that the bank would approve as a valid reason why the homeowner could no longer pay their mortgage anymore. I can see you thinking right now….but so and so did a short sale and they didn’t have any of those reasons! Yes, everyone knows someone who had their short sale approved and didn’t have a hardship, but my response would be that this is a rare situation, and/or perhaps you are unaware of a hardship that exists for the seller. Many of these reasons are very personal.

Now, what is a home that is short sale contingent? This is a home that is attempting a short sale that was listed in MLS and now has an offer on it. This offer has been accepted by the seller – ie, the homeowner – and has been submitted to the bank for acceptance. Since the bank is taking a loss on the property, it is up to the bank to accept the offer in the end. This is limbo land. This is an unknown period of time where the bank is reviewing the seller’s short sale package, determining market value, negotiating with any second or third loans on the property, and determining their decision. This process may be as short as a few weeks, to several months, with an average time being 90 days or so.

During this time period, the listing agent of the short sale will likely only submit one offer to the bank, however, the bank may have specifically requested to see ALL offers on the home. If you are interested in a short sale contingent property, have your agent call the listing agent of the property and check in on the status of the home. Have your agent ask the listing agent if the offer looks solid, or if the buyer looks like he/she may walk. Ask for your offer to be put in “back up” position in case the first offer walks. Buyers walk for all sorts of reasons – such as not wanting to wait any longer, not agreeing to a bank’s counter offer, not being able to obtain financing, or not liking inspection results. It’s not always a horrible thing to be put in back up position…you can keep looking for other homes while having a home you like in your back pocket.

Real Estate….You Either Love It or You Hate It

The current real estate market is a funny thing…you either love it, or you hate it. Most people fall in one of these two camps and are outspoken about the side they are on. The one side knows that this is an amazing time to buy right now. The combination of historically low interest rates, low – or “normal” – home prices, and the number of foreclosed homes being sold at auction make it a great time to get in the market and purchase a primary residence or an investment property. Every time I utter the words, “Rates just can’t possibly go lower”, they somehow find a way to do just that and prove me wrong.

There are so many buyers taking advantage of the market right now – and many of these are first time buyers, and many more are savvy investors. For first time buyers, it is a great time to purchase a starter home where six years ago it would have been impossible. For many real estate investors, there is an amazing opportunity to buy long term rental properties, or “flip” homes. These investors that flip homes buy properties at auction with cash and “flip” the property back to the market for positive income. They may or may not do repairs or updates to the home such as new carpet, paint, and granite countertops or a new kitchen…things that today’s buyers are looking for in a home. Other investors simply take advantage of low starting price of foreclosed properties, and buy a newer home to simply put it right back on the market without spending a dime!

On the flip side, there’s a whole lot of homeowners who are more or less stuck in today’s real estate market. These homeowners may be under water, and their mortgages may be looming over them as they wish they could upsize or move to a different location. For these buyers, I always suggest that they open their minds to think creative and be creative. Recent communication from the President may possibly bring good things for buyers – such as the ability to refinance an underwater loan, or even qualify for a principal reduction – but I wouldn’t bank on it. The government programs I’ve seen come up in the past few years have been less than successful. I would urge you to consider your options and meet with your lender to sit down and sketch out a two year or a five year plan. I believe that interest rates will stay low, and prices will be great over the next few years. Don’t lose faith – you haven’t missed the boat of the right time to buy just yet. If you need a lender referral, I’d be happy to provide some I’ve come to trust and respect.

It’s not all doom and gloom, and I hope that 2012 will bring positive changes – either by enacted legislation, or by an improving market. Be proactive and take this time to pay down your principal. Skip a few cups of coffee each month and put a few extra dollars towards your principal. Set a goal for yourself – you’ll end up paying down your mortgage faster than you think. Then, once you’ve met your goals, consider refinancing and keeping your current home as an investment property while you move into something you’ve been dreaming of. Your lender would be the best point of contact to help you sketch out these goals, and I’d be happy to help in any way you see fit. Good luck!

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