1. Why are so many loan applications being denied?

According to several different underwriters I talked to, the two main reasons lenders are denying loan applications are, #1 the buyer did not qualify for the loan program the lender submitted for approval, as the underwriting guidelines for the particular loan program were not followed, and #2, the documentation sent in on the loan application was not verified upfront. As there are quite a few examples I could elaborate on why the underwriters are denying applications, I will only go through a few of these. For example, the underwriters mentioned that “FHA buyers purchasing condos“ and “Buyers purchasing flipped properties” are 2 types of transactions that they seem to decline more than most. So here are some tips to make sure these two purchase options go smoothly.

FHA Buyers Purchasing Condos

According to FHA underwriters, the majority of FHA transactions that do NOT close escrow are due to one of the following 4 reasons below. If your client is interested in buying a condo & obtaining FHA financing, try and get the following 4 questions answered upfront to ensure the complex will qualify for FHA financing, otherwise when the HOA cert comes in and one of these 4 below are wrong, the loan will be denied.

1. Is the complex currently FHA approved? The complex has to be FHA approved, here is a link to check if a complex is FHA approved or not.

2. What are the owner occupied ratios? Remember FHA needs 50% of the units to be Owner occupied!

3. Are there less than 15% of the units in the complex currently delinquent. The FHA requires that no more than 15% of the units can be delinquent in a 30 day period.

4. Is there any current litigation in the complex? The FHA will not allow any financing in a complex that has litigation.

*Here is a Solution. If a particular complex is NOT FHA approved, then the buyer can qualify for 5% down conventional financing instead. It is a much better loan for the buyer anyway as it eliminates the expensive FHA monthly mortgage insurance, so they will get an even lower monthly payment.

Buyers Purchasing Flipped Properties

Another reason loan applications are being denied, is because the property was a “Flip” and did not meet the qualifications for financing. For example even though Fannie Mae, FHA and the VA have no problems financing flips even if the seller is making >20% in less than 90 days of resale, unfortunately there are Conventional, FHA and VA lenders that will not finance this type of transaction at all.

Some conventional lenders also require 2 appraisals and when one comes in lower than the other this will kill the deal (you must use the lower of the 2 appraisals). *2 appraisals are required on FHA flips where the seller is making >20% within 90 days of resale. So the problem with flips is that some lenders have their own “Overlays” or rules that they apply on top of Fannie Mae, FHA and VA flip rules to help limit their loan risk. So therefore it is very important that the right lender is chosen upfront to ensure it will not run into problems.

Here is a summary of the rules for purchasing flipped properties when obtaining either Conventional, FHA or VA financing, New Rules Buyers and Sellers Must Know About Financing Flipped Properties.

2. Appraisals are Not Coming in at Value?

The #2 reason why 33% of transactions are falling out of escrow right now is because appraised values are coming in below the negotiated price! We all hear about out-of-area appraisers who don’t know the local market, use of distressed-sale properties to appraise a property that is not being sold under distress, and lack of comparable sales. The key to a good appraisal is using accurate comparable sales to arrive at an appropriate price for the property in question.

New HVCC Rules have Created Problems

We all know that Fannie Mae initiated changes in appraisal guidelines in 2009 via HVCC that prohibit mortgage brokers or agents from selecting the appraiser. However, even though the loan officer can’t have direct contact with the appraiser, a real estate agent can. Here are 4 tips for agents to help with appraisals.

4 Appraisal Tips for agents

Here are some good tips for agents to follow when the appraisal is being done on a transaction, that will help ensure the final appraised value is not left up to chance.

1. Meet the appraiser at the property.

The buyers or sellers real estate agent should always plan to meet the appraiser at the property to offer relevant comparable sales information. Make sure you are the contact to schedule the appraisal and then go meet the appraiser at the property and find out if he knows the area, what data is he using etc, so you can ensure that you are giving every chance for the appraised value to come in at the purchase price.

2. Improvement list provided to appraiser

If improvements have been made to the property, or there are features that don’t meet the eye, a list should be provided to the appraiser so they can include this in their final report.

3. Public records are often wrong

The public record is often wrong, particularly regarding square footage. Any documentation to justify a different number should be made available. According to current appraisal guidelines, square footage added without a building permit usually won’t get credit as usable square feet. This can lower the appraised value.

4. When there aren’t enough comps for past 3 months

When there aren’t comps for the past three months, it’s critical the appraiser is provided with the data upon which to make an accurate evaluation, particularly if the appraiser is unfamiliar with the local market.

As appraisers these days now work for the lenders and have no relationship with any parties on the transaction, unfortunately there will be appraisers that do not care what the final value comes in, as they get paid regardless of the quality of their work! Therefore it is important to do what we can to improve the odds that the final appraised value is not left up to chance.

Doing the homework upfront on transactions is key

It is no secret that lenders are changing their rules all the time these days and most would say much too often, one underwriter told me they had over 100 new rule changes to deal with last quarter alone on Fannie, FHA and VA loans. So if a loan officer is not paying very close attention to all of these changes and is not doing thorough homework upfront on the buyers or the property, the buyer can be put into a transaction that will not close escrow.

Myself and my team consistently track and read any changes that come from all the lenders, and we will always do as much homework as necessary upfront to ensure any buyer that goes into contract will close escrow. If you have any questions about any programs please feel free to contact me directly at 858-200-9602.

San Diego 2012 VA loan limits drop from $537k to $477k

The VA just released their loan limits for 2012. Unfortunately for San Diego the VA lowered our 2011 VA loan limit from $537k down to $477k. This means that 100% VA financing is now only available to $477k for buyers in San Diego, whereas in 2011 this was available to $537k. You can check here for the new 2012 VA loan limits for your county. *For a purchase price over $477k, there is a special formula the VA uses to calculate what a VA buyers down payment requirement is. Feel free to contact me if you have a VA scenario and you want to calculate what a buyers new down payment requirement is.

Here are the most frequently asked questions in regards to VA purchases.

1. Who is eligible for VA financing?

A veteran is eligible for VA financing if he/she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard and was honorably discharged after 24 continuous months of active duty, or the full period for which called, or ordered to active duty, but not less than 90 days (during wartime) or 181 continuous days (during peacetime).

2. VA buyers can purchase with $0 down payment?

As mentioned above, VA buyers can get 100% financing here in San Diego to $477k? VA financing is still the only loan program that allows 100% financing in any area (FYI the USDA allows 100% financing, but this is strictly for rural properties). As the FHA still requires a 3.5% down payment and most conventional loan programs still require anywhere from 3% to 20% down payments depending on the credit profile of the buyer, this is still putting home ownership out of reach for many buyers.

3. Easier qualification rules for VA buyers

Most banks have easier qualifying and credit guidelines for VA buyers. Because many first time buyers typically don’t have a lot of established credit, getting qualified for a conventional loan can be more difficult. Most VA lenders only need a 620 credit score to offer 100% VA financing. Also some VA lenders allow a buyer to qualify up to a 60% debt to income (DTI) ratio on VA loans, Fannie Mae is now capped at 50% and 45% in some cases.

4. VA buyers pay no monthly Mortgage Insurance

Another huge advantage for VA buyers is that they do not have to pay any monthly mortgage insurance (MI) on their loans, as these are backed by the government. Remember all FHA loans require mortgage insurance. So having no monthly mortgage insurance allows VA buyers to either purchase a bigger home or have have a lower monthly mortgage payment.

3 Tips to ensure VA purchase offers get accepted

There is a misconception out there that sellers discriminate against buyers using VA financing because of the following three reasons: 1. The low down payment requirement means less skin in the game. 2. The (misguided) perception that the seller must pay for some or all of the buyer’s closing costs. 3. The (false) belief that VA appraisers are less generous in their appraisals. Here are 3 tips to debunk seller held credit myths about VA financing, so you can ensure your purchase offers will get accepted.

1. The zero down payment requirement means less skin in the game

We can’t argue with this because VA does allow 100% financing, so this does amount to very “little skin in the game”. But here is what you can do to strengthen the VA buyers profile, show the seller that the borrower has a DU approved loan (automated VA underwriting approval) and also include asset documentation (proof of reserves etc) to support that approval. This will assuage the fears a seller might have about a buyer (and that buyer’s lender) performing with their financing.

2. The (misguided) perception that the seller must pay for some or all of the buyer’s closing costs.

On VA transactions, the seller is NOT required to pay ANY costs for the buyer, but is allowed to pay up to 4% towards a VA buyers costs. There are certain “VA non-allowable” costs for which a VA buyer is forbidden to pay, (for example No escrow fees, wiring, notary, tax service or processing fees are allowed to be charged).

So here is a good tip to help get a VA offer accepted, so this issue of who covers these VA non allowable fees does not become an issue when negotiating a purchase price. It is advised that the following language be inserted in to the purchase contract so the seller is not put off by the VA offer: “Seller not responsible for any buyer closing costs, regardless of the selected loan program. All agency-related “non-allowable” costs to be borne by lender”.

3. The (false) belief that VA appraisers are less generous in their valuations.

There is a common misconception that VA appraisals usually come in lower. While I am sure that a lot of people have had a VA appraisal come in lower, I am sure they can say the same about FHA and conventional financing too. Underwriters and appraisers will point out, as long as the property is properly priced and the offer is reasonable, the VA appraisal should go smoothly. We have done on average 2-3 VA transactions a month for the past few years and I have only seen a value come in lower in maybe 10-15% of these VA transactions, which is similar for other forms of financing too.

VA Appraisal TIP. One of the most common appraisal value “hits’ I have seen is when the purchase price is increased, above listing price, to accommodate for the seller-paid contribution. Be wary of that when submitting/accepting offers and have a back-up plan. If the appraisal does come in low make sure the buyer has additional reserves to potentially come in with more cash to close, because Remember the lender will only approve financing to 100% of the appraised value.

A great marketing opportunity, support our troops!

Because of the large number of veterans that are living in California, this represents a tremendous opportunity to work with VA buyers. My wives dad is ex military and her brother is currently in the Navy, so I especially enjoy working with VA buyers. I have always found that VA buyers are a pleasure to work with because they are very loyal and they communicate very well too, and it also feels good to know you are giving back a little to our armed forces by helping them obtain home ownership, as they sacrifice so much for all of us on a daily basis.

If you have any questions in regards to VA purchases please feel free to contact me directly at 858-200-9602. My company is approved directly with the VA, so we are able to offer all the best programs that are available to our military friends. I look forward to chatting soon.

National Mortgage Professional Magazines Top 25 “Most Connected Mortgage Professionals”

First of all,  I wanted to share some good news, as I was recently named in the “National Mortgage Professional Magazines top 25 “Most Connected Mortgage Professionals”. It’s always nice to be recognized for your hard work:). You can check out the article Here (on page 40 of 52)

A positive sign for the Real Estate market

I think it is a positive sign for the Real Estate market that lenders and the mortgage insurance companies have reintroduced the 95% conventional loan product and are now willing to offer this program again. It is another sign the housing market is healing, as investors and mortgage insurance companies are now willing to offer these higher loan to value financing loan programs that have been unavailable for the past few years due to depreciation concerns.

FAQ’s about the NO MI 5% Down Program?

Here are a few of the most frequently asked questions that I get asked about this new program.

What is the maximum loan amount with this NO MI 5% down?

The maximum loan is $417k which is the conventional loan limit. Fyi, this No MI program is available to 90% (only 10% down payment) on jumbo loans up to $546k in San Diego.

Can the buyer receive the 5% down payment as a gift?

Unfortunately no, the 5% funds must come the buyer. The funds have to sourced and seasoned over 60 days. Here is a tip, if you know someone looking to buy in a few months, have them deposit the gift now into their bank account and wait a few months, so the bank will not ask where the funds came from if it is seasoned in their account for 60 days.

Can you get 5% down No MI on 2nd homes or Investment Properties?

The 5% down is for Primary Residences only. On 2nd homes you only have to put down 10% to obtain the NO MI payment option. On investment properties this program is not available, as you have to put down 20%, which eliminates the Mortgage insurance anyway.

How do you “Buyout” the Mortgage Insurance?

It is very simple. All you have to do is take a slightly higher interest rate than normal say (from 4% to 4.375%) and the additional yield (lender rebate) at the higher rate “buys out” the MI. Essentially the mortgage insurance companies get paid upfront.

What credit scores are required to qualify?

Most lenders now only need a 620 credit score to qualify for this loan program. Please note the lower the credit scores the higher the interest rate will be.

Do condos qualify for the NO MI 5% down program?

Yes, you can qualify with only 5% down and get the No MI on condos too.

Aren’t FHA interest rates lower than rates for this program?

FHA rates are lower, but when you factor in the very expensive FHA monthly MI, the FHA overall monthly payment will always be higher than this No MI 5% down option. (*see below for an example comparing both loan options).

Compare the monthly savings on this program to FHA financing

Here is an example below of a 5% down NO MI purchase option compared to a FHA 3.5% down purchase option. In this scenario the buyer is looking to purchase a $375k home. On the left column is the conventional 5% down No MI option. The buyer only has to put down 5%, the overall monthly PITI payment is $2105. On the right hand side is the FHA 3.5 down payment option. The FHA overall monthly PITI (including the expensive FHA MI of $346) is $2426. Because there is NO monthly mortgage insurance, the conventional 5% down No MI option saves the buyer $321 a month and $32,117 over the next 10 years vs the FHA purchase option.

So instead of paying the expensive MI each month with FHA (loan on right), the option of “buying out” the MI will get the lowest monthly payment for the buyer. Or the buyer can turn around and put the additional $321 monthly savings into purchasing an extra $50k in home, and still have the same payment as the FHA buyer. Which means the 5% down No MI buyer can purchase a $425k home for the same monthly payment as the FHA buyer purchasing a $375k home.

A great program for all homeowners

Here is another tip for buyers. Let’s say you want to purchase in a complex that is not FHA approved, you can now use this conventional loan program to get financing in non FHA approved complexes. *There are conventional condo rules to follow, but they are not as strict as FHA’s minimal standards to get condo financing approved (FHA has strict owner occupied ratios, & HOA delinquency rules to meet).

Overall, this new conventional 5% down No MI program is a great purchase option for all buyers, and a great program to share with friends and family. As this program will help buyers obtain home ownership with a minimal down payment, and not have to deal with expensive monthly mortgage insurance every month, so they can maximize their savings. * Fyi this program also works the same for refinances, as borrowers can now refinance up to 95% of their home without having to pay any mortgage insurance, as many homeowners have lost equity over the past few years, this is a great option to help them get a lower monthly payment.

If you have any further questions about how to qualify for this program, please feel free to contact me directly at 858-200-9602 or via email at mdeery@citywidefinancialcorp.com

It looks like the FHA is set to raise their Mortgage Insurance “MI” payments again on buyers! HUD Secretary Shaun Donovan told a Congressional hearing on “Perspectives on the health of the FHA single family insurance fund” this past week that The FHA may need to raise its MI premiums again to shore up its finances. Considering this is how they signaled the last two MI hikes, this is information that buyers should know about so they can make an informed decision about purchasing a home. This will be the 3rd time the FHA have increased their monthly MI payments in just the past 18 months, and each of the last MI hikes were the same as increasing a buyers interest rate by .5%.

The FHA’s finances are in bad shape

So why would the FHA increase their current “MI” premiums on new buyers considering the delicate state the housing market is currently in? The FHA’s reserve funds are depleting fast and are not in good shape right now! Take a look at the chart below.

The FHA is mandated by Congress to maintain a minimum balance (the ratio of economic value to insurance-in-force) in the Fund of 2%. You can see they are currently at .125%, so out of the 100% reserve funds that they are required to have, they only have 12.5% of these reserves available! The FHA said that if housing prices take a tumble next year for some reason, they may need a bailout to shore up their finances. This leads me to believe they’ll have no choice but to raise their monthly MI soon to shore up their finances, we just don’t know when.

How high will the FHA raise the monthly MI again?

Back in 2010, the FHA already got permission from congress that passed a law allowing the FHA to raise their monthly MI % up to a maximum of 1.5% depending on the status of their finances. (their current MI premium percentage is at 1.15%). So lets look at how much the last 2 FHA MI payment hikes over the past 18 months increased a buyers payment. Lets use a $350k mortgage as an example.

*Prior to any hikes, the FHA MI monthly payment % was .55% of the loan amount. = $160 a month
*1st hike 18 months ago increased it to .85% =$247 a month
*2nd hike 12 months ago it increased it to 1.15% = $335 a month
So the FHA mortgage insurance payment for buyers more than doubled in just the past 18 months. I would venture to say they will increase this to the maximum allowed amount of 1.5%, so on a $350k mortgage this will increase a buyers monthly payment another $102 a month.

Compare monthly savings by purchasing now vs waiting for FHA MI increase

Lets compare the monthly payment for a buyer purchasing a home today using FHA’s current MI % of 1.15% versus an increase to 1.5%, so buyers know how much their payment will increase. We will use a $350k loan as an example.

Buying Today

$350k loan

P&I payment at 3.875% is $1650

Say taxes and insurance are another $350 monthly

Today’s MI % of 1.15% ($350k/1.15%) =  $335 a month

Total PITI = $2335

Wait 6 months to Buy and MI Increases

$350k loan

P&I payment at 3.875% is $1650

Say taxes and insurance are another $350 monthly

FHA MI % increases to 1.5% ($350k/1.5%) =  $437 a month

Total PITI = $2437

*As you can see above, with the FHA MI increasing from 1.15% to 1.5%, the buyers payment has increased $102 a month, which is the same as an interest hike of .5% for the buyer.

It’s another reason to buy now

This potential MI increase by the FHA is information that all buyers should know about asap, so they can decide if it is worth committing to moving forward to purchase now, just in case the FHA does increase their MI requirements soon. It is the oldest trick in the book for government agencies to come out and signal to the market via the media any impending changes they are going to make to any programs.

As I explained to a few buyers I was talking to this morning, by moving forward and committing to buying now, you are taking out an insurance policy on your preferred monthly mortgage budget payment that you are currently happy with, because if the FHA does increase their MI, your overall monthly mortgage payment increases too. Because everyday we take out Auto, health and business equipment insurance etc just in case something unforeseen happens, buyers can do the same thing right now by taking out an insurance policy on their preferred monthly mortgage payment by committing to moving forward and purchasing now.

If you have any questions in regards to FHA MI, please feel free to contact me directly at 858-200-9602. I look forward to chatting soon.

What is HARP?

The Obama administration rolled out HARP in 2009 to refinance borrowers whose loans were backed by Fannie Mae and Freddie Mac and who were current on their payments. The idea was simple: If you were making your payments on time but didn’t have enough equity to refinance, you would be able to lower your rate without having to pay down your mortgage balance or take out mortgage insurance.

Initially, the program was limited to borrowers who owed between 80% and 105% the value of their homes. In mid 2009, the program was opened to borrowers who owed up to 125% the value of their homes. But either bad appraisals killed too many deals, or most lenders did not participate in the program to 125%, so overall the program was not a success. But HARP 2.0 has removed the appraisal requirement, so this should help qualify many more upside down homeowners to be able to refinance.

Who Qualifies for HARP 2.0?

If you can answer “YES” to the following 4 questions then you meet the requirements to qualify for this program.

1. Does Fannie Mae or Freddie Mac own your mortgage?

Not many people know if Fannie Mae or Freddie Mac owns their mortgage. Even if your current mortgage holder is Chase, Citi or B of A for example, there is a good chance your loan was probably sold to Fannie or Freddie originally before it was sold to your current mortgage holder. I can check to verify if Fannie or Freddie owns your mortgage, all I need is your property address and then I can run it through Fannie or Freddies system and let you know if either owns your mortgage.

2. Have you paid your mortgage on time in the past 6 months?

This new refinance program requires that you have not been late on your mortgage in the past 6 months, and only allows one mortgage late in the past 12 months. *A mortgage late,  means you were more than 30 days delinquent on a monthly payment.

3. Is your current mortgage less than $417k?

This is the maximum loan amount that will be allowed to qualify for this new refinance program.

4. Did your current mortgage close before June 1st 2009?

In order to qualify for this new program, the last refinance you did on your existing mortgage had to be prior to June 1st 2009, or you bought your home prior to June 1st 2009 and you have never refinanced since buying.

Frequently Asked Questions about HARP 2.0

Here are the most frequently asked questions, along with answers, that everyone has in regards to this new refinance HARP 2.0 program.

1. What if I owe $400k, but my property value is $325K

That’s ok, because there is NO appraisal requirement on HARP 2.0, it does not matter what your home is worth!

2. What if I have a 2nd mortgage?

That’s ok too, according to the big 4 banks (Wells, B of A, Citi & Chase) who own most of the 2nd mortgages in the US, they said they will allow 2nds to be subordinated under this new program. So you will still be eligible even if you have a current 2nd mortgage that is over the value of your home.

3. What will interest rates be for HARP 2.0?
As the lenders are not set up to take applications yet, we don’t know exactly what rates will be. But I will venture to say they will be between 4%-4.5% depending on credit scores.

4. What if my new loan is over 80% of the value of my home, will the lender require mortgage insurance?
No, as there is NO appraisal requirement, there will be NO mortgage insurance required on the new loan. *Your new loan will NOT require mortgage insurance “PMI”, as long as your current loan also does NOT have mortgage insurance.

5. What if I currently have mortgage insurance?

If you have mortgage insurance on your current loan, the mortgage insurance will automatically be transferred to the new loan. Banks have also announced that they will transfer over the mortgage insurance PMI in most cases.

6. When will Lenders start accepting applications?

Some banks have said that they could begin taking applications as soon as December 1st, as they are currently getting the program set up in their systems. I will let you know when loans can be submitted under this new program.

7. What else is being done to lower homeowner costs?

Another change involves fees that Fannie and Freddie charge banks for borrowers with lower credit scores. For example, Fannie and Freddie have agreed to waive those fees for borrowers who refinance into loans with a shorter term, such as a 20 or 15-year mortgage. They also said there will be reduced fees for 30 year mortgages, which will translate to lower rates.

8. What if Fannie or Freddie don’t own my loan—can I refinance through this program?

Unfortunately No. That’s a major limitation, of course, because “jumbo” mortgages aren’t held by Fannie and Freddie, and many of the most underwater subprime mortgages are in privately held mortgage securities that weren’t issued by Fannie and Freddie.

Its not Perfect, but HARP 2.0 will help more people refinance

This new HARP 2.0 program is not perfect by any means, and it does not help everyone. But the Federal Housing Finance Agency estimates that another 800,000 to 1 million borrowers could refinance through HARP 2.0. As you can see below for example, refinancing since 2010 has been extremely muted in CA among borrowers with credit scores lower than 680, compare this to borrowers with scores even over 720. So this program is especially going to help those homeowners with lower credit scores.

Overall I think this program is probably one of the better ones initiated by this administration so far to aid the housing market. I believe this new program will allow lots of homeowners to be able to drop their interest rate from over 6% down to rates probably in the mid 4% range, and save on average over $200 a month.

If you have any questions in regards to this program, or if you know someone this program could help, please feel free to contact me directly at 858-200-9602 or forward this information on them.

Compare buying the same property at 4% vs 5%!

Lets take a look at a purchase scenario. In this example below, on the left hand side we have a property that you can buy today at $400k and with an interest rate of 4%, but in 12-18 months time you can buy the home for $390k but it will come with an interest rate of 5%. On this example a buyer is putting down only 5% and can qualify for a NO PMI conventional loan.

The payment on the 4% loan is $2197 a month, whereas the payment on the 5% loan is $2363 a month. So even with the price reduction of $10k, the monthly mortgage payment on the 4% loan is still $166 less a month than the purchase at 5%.

Savings over 15 years

As you can see below, over the next 15 years, the total payment and interest savings amount to $47,203 on the 4% loan vs the 5% loan.

Savings over 30 years

Over the next 30 years, the total savings amounts to $72,413 for the 4% loan over the 5% loan. So the buyer who waited and bought the property with a 5% rate will pay an extra $72k over time for the “cost” of purchasing this same home.

In summary, by waiting 12-18 months for prices to drop by say $10k, but if rates just increase by 1% during this time frame, a buyer will pay an extra $72k in payments and interest over 30 years to purchase this same property. Or another way to look at it is this, if the 5% buyer wants to pay back the same financing costs over the term of the loan as the 4% buyer, the price of the home would have to drop another $40k for the 5% buyer to match the same costs! This is why buyers must truly understand how “Cost vs Price” works, and that the overall cost that it takes to purchase a property is also just as important as the actual price tag of the home.

The Impact of Rates on Payments

Here is a great chart below to share with buyers that shows the “impact of higher rates on payments”. As you can see, as rates increase by just 1%, values must come down 10% to match the same payment. Or in other words, when rates increase by only 1%, buyers now lose 10% in purchasing power or affordability. A good rule of thumb to advise buyers is that “their payment will increase by 10% when rates increase by 1%”.

Its important Buyers understand Cost vs Price

Waiting for a reduction in price is not the only way to get a great deal on a home. Too many buyers today have become fixated on finding the bottom of the market because there is too much emphasis on getting the lowest price. What is just as important is factoring in the overall cost to buy a home and that includes the interest rate and financing costs.

There is no guarantee that interest rates are going to stay this low, and there is probably not much chance they are going to go any lower as there is no secondary market for rates lower than where they are today, so the only way they will probably go from here is up. Therefore I believe we are at or very near the bottom of the market when considering the “overall cost to finance a home”.

If you have any questions, please do not hesitate to contact me directly at 858-200-9602. I look forward to chatting soon.

Flipped rules for VA Transactions

There is a misconception out there that the VA has their own set of rules for flipped properties. The VA does NOT have an anti flip rule, but the catch is there are many lenders that do apply their own set of rules (or lender “overlays” as they are called) on a flipped transaction.. So the secret here is to use a lender that will not apply any of their own rules on the transaction.

“Overlays” are unique underwriting rules over and beyond what the VA require on a transaction, that a lender will apply to minimize their risk on a transaction. I have several VA lenders that we are approved with that do NOT have any VA overlays for flipped properties, even if fir example the property has more than a 20% profit for the seller within 90 days of acquisition.

Flipped rules for Conventional Transactions (Fannie and Freddie)

Just like the VA, Fannie Mae and Freddie Mac does not have a anti Flip rule, as long as the sales price can hold its value with a good appraisal. But once again many lenders will apply their own set of “overlays” over and beyond what normal Fannie and Freddie underwriting guidelines are, to minimize their risk on the transaction. For example I have heard of some lenders asking for 2 appraisals if the profit to the seller is more than 20% etc.

Another issue that comes into play is when a buyer needs to get financing over 80%, because now the buyer has to qualify for mortgage insurance. When “MI” companies have to get get involved in the transaction, they will want to see more documentation to justify the appreciation on the property, so be prepared to document the value increase thoroughly with supporting documentation. Again, the secret to getting conventional financing on flipped properties, is to make sure the lender has No Flip Overlays.

Flipped rules for FHA Transactions

The FHA is definitely the program with the strictest rules. The FHA does allow financing on flipped properties within 90 days of resale even with more than 20% profit to the seller, as long as certain requirements are met. But NOT all FHA lenders are offering financing on flipped properties within 90 days, as once again many lenders are choosing to apply their own set of rules.

The 5 Flipped Rules to Know for FHA Financing

* The following rules apply to a property that is being resold within 90 days and there is more than a 20% profit to the seller. *Not all of these rules apply to a flipped property that is being resold that is more than 90 days old.

1. 2nd Appraisal if more than 20% profit within 90 days

The FHA requires a 2nd appraisal if there is more than 20% profit to the seller within 90 days of purchasing the property. The appraisal must clearly address the completed repairs and/or renovation to substantiate the increased value. Also very important, the FHA does not allow the buyer to pay for the 2nd appraisal.

2. A home inspection is required on all flips

A home inspection is required on all flips by the FHA. The inspector must have no interest in the property or relationship with the seller, and must not receive compensation for the inspection for any party other than the borrower. Usually any and all repairs that are listed on the inspection report will be called out by the underwriter to be fixed by the seller. Remember, on FHA financing the buyer is not allowed to pay for any repairs, so if there are going to be repairs needed, make sure these are addressed with the seller ahead of time so there are no last minute surprises at funding.

3. Health & Safety repairs

Any health and safety repairs noted on the inspection report, not already called for by the appraiser, will be required to be repaired by funding, which means the appraiser will have to go back out to the property and take pictures or the repairs.

4. All transactions must be arms-length

All FHA flipped transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. For example, some lenders do not allow the escrow company to be affiliated with the buyer or the seller as this is an identity of interest, otherwise a new escrow company will have to be used during the transaction. Sometimes the seller or the REO company who is selling the property will have an escrow company too, so this is not allowed by some FHA lenders, so make sure this is checked up front if there is an affiliation with any two parties on the transaction.

5. A minimum 12-month chain of title is required

A minimum 12-month chain of title will be required on the preliminary title report to determine no pattern of previous flipping activity exists for the subject. If the property has been flipped twice in the past 12 months, it will not qualify for FHA financing.

Address all concerns upfront on any properties

A good idea is to address any concerns upfront on all properties along with cross checking the type of financing the buyer is getting too before the buyer goes into escrow. A good rule of thumb is to first of all check the purchase date when the seller bought the property, as this will determine many of the rules above. This will ensure the buyer will qualify for the right loan program and there will be no issues getting the transaction funded. If you have any questions about a flipped property scenario, please do not hesitate to contact me directly at 858-200-9602 so we can address any concerns you have. I look forward to chatting soon.

Renting versus owning

In many parts of San Diego, I would say $2k a month is an average rent a lot of people are paying these days. So let’s take that $2k a month payment and see what you can buy with that monthly budget. We will assume the buyer only has a small down payment of 5% available. Now most people will assume that this buyer will have to go with FHA financing because of the small down payment funds available, that is not true anymore.

For example, a buyer can now get conventional financing and pay NO mortgage insurance “MI” with only a 5% down payment, all they have to do is choose  the loan option whereby they take a slightly higher interest rate and “buyout” the mortgage insurance. This is a much cheaper alternative to a 3.5% down payment FHA loan, as FHA loans require buyers to pay really high MI payments each month. For example on a $350k purchase, a FHA buyer will pay an extra $323 a month in FHA mortgage insurance versus the 5% down conventional No mortgage insurance loan option. Now the conventional buyer can use these additional monthly savings of $323 to purchase an extra $50k in home and still have the same overall monthly payment as the FHA buyer. Here is more more information on this Conventional No MI program.

How Much Home Can I Purchase with $2k a month?

Here is the example of a “Rent vs Own” report below comparing renting versus owning for $2k a month. For a total monthly payment of $2k a month, a buyer will be able to purchase a property for $350k, using only a down payment of 5%, and get an interest rate of 4.375% on a conventional loan with NO PMI, and have a total PITI (Principle & Interest, property taxes & insurance) payment of $2k a month.

As you can see above, the buyer will be able to take advantage of a tax benefit of $451 a month and also pay $448 a month towards principle, versus the renter who will receive no benefits from writing a check for $2k in rent every month.

Rent vs Principle paid over 10 years

In this section of the report it shows the rent versus principle paid over 10 years. You can see the buyer will have paid down the principle on his loan $67k over the next 10 years, whereas the renter has paid no principle, and in fact will pay over $274k in rent over the next 10 years.

Net Worth in 10 years

In this section of the report it shows the buyers net worth after just 10 years. By deciding to purchase a home, the buyer will have accumulated a net worth of $205k over 10 years from the financial benefits of home ownership. These 3 main financial benefits are, paying down the principle on the loan, substantial tax deductions at tax time, and accumulated equity gains due to appreciation on the property. Whereas the renter has a zero net worth due to no financial benefits of paying rent to the landlord over 10 years. Here is a link to view this report in full http://mcedge.tv/16a9w8 .

It’s time to buy and not rent!

If a buyer is one of those who is worried about prices declining further, then they should consider the following: Prices are low and rates are low. If you talk to your accountant and find out what the mortgage interest deduction and deduction for real estate taxes will do for you, you will probably find it is now cheaper to own than to rent in many areas. Because when prices decline investors rush to buy properties.  They hold on to these properties because they expect the values to increase. In the meantime they rent them out. Demand for rentals goes up when fewer owner occupant properties are sold.  As demand for rentals goes up so do the rents.

But if you own your own home, and get a low fixed rate mortgage, your principle and interest payments are constant and will never change. The taxes and insurance usually go up, but guess what? Landlords also add this to the rental increase if you are renting.

The clients I work with love these “Rent vs Own” reports, because it compares the financial benefits of owning versus renting and shows all the figures they need to see when when making the decision to buy a home. If you would like to see one of these reports with figures you are interested in looking at,  please feel free to contact me directly at 858-200-9602 and I would be happy to put this together for you. I look forward to chatting soon.

A good sign for the housing market

How does this No PMI work?

Check out the Savings on a Regular Refinance
If you are just looking to do a regular refinance and you do NOT need to take advantage of this No PMI loan program, you may be able to qualify for a 3.99% refinance with no closing costs. Check out the savings below on this scenario. Even if you have a current interest rate at 4.75%, at 3.99% you will save $220 a month on a $410k loan, or you can even take a 25 year fixed and still save $13 a month over your current 30 year loan at 4.75%, but save 5 years off your loan.

I believe VA financing is the best purchase product available in the market today, especially as the VA makes it easier for their members to qualify to purchase a home, and as of today, VA buyers can get 100% financing at an incredible interest rate of 3.75% on a 30 year fixed. Here is all you need to know about VA financing, so you know who qualifies as well as some tips on how to get sellers to accept your VA purchase offers.

Who is eligible for VA financing?

A veteran is eligible for VA financing if he/she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard and was honorably discharged after 24 continuous months of active duty, or the full period for which called, or ordered to active duty, but not less than 90 days (during wartime) or 181 continuous days (during peacetime).

3 reasons why VA financing is the #1 loan program

1. VA buyers can purchase with $0 down

Did you know that eligible veterans are allowed to take out a mortgage up to $537,500 and 100% financing here in San Diego? Check here for your County limit as designated by the VA, VA Loan Limits for each county for 2011 . VA financing is still the only loan program that allows 100% financing in any area (FYI the USDA allows 100% financing, but this is strictly for rural properties), as the FHA still requires a 3.5% down payment and most conventional loan programs still require anywhere from 3% to 20% down payments depending on the credit profile of the buyer, which is still putting home ownership out of reach for many first time home buyers.

2. Easier qualification rules for VA buyers

Most banks have easier qualifying and credit guidelines for VA buyers. Because many first time buyers typically don’t have a lot of established credit, getting qualified for a conventional loan can be difficult. Most VA lenders only need a 620 credit score to offer 100% VA financing, whereas FHA and Conventional financing now require higher credit scores. Also some VA lenders allow a buyer to qualify up to a 60% debt to income (DTI) ratio on VA loans, Fannie Mae is now capped at 50%.

3. VA buyers pay no monthly Mortgage Insurance

Another huge advantage for VA buyers is that they do not have to pay any monthly mortgage insurance (MI) on their loans, as these are backed by the government. Remember, most conventional loans require mortgage insurance if you put down less than a 20% down payment, and all FHA loans now require mortgage insurance. So having no monthly mortgage insurance allows VA buyers to either purchase more home, or have have a lower monthly mortgage payment.

3 Tips to get your VA purchase offers accepted

There is a misconception out there that sellers discriminate against buyers using VA financing because of the following three reasons: 1. The low down payment requirement means less skin in the game. 2. The (misguided) perception that the seller must pay for some or all of the buyer’s closing costs. 3. The (false) belief that VA appraisers are less generous in their appraisals. Here are 3 tips to debunk seller held credit myths about VA financing, so you can ensure your purchase offers will get accepted.

1. The zero down payment requirement means less skin in the game

We can’t argue with this because VA does allow 100% financing, so this does amount to very “little skin in the game”. But what we can do, is strengthen the VA buyers profile and show the seller that the borrower has a DU approved loan (automated underwriting approval) and also include income and asset documentation (proof of reserves etc) to support that approval. This will assuage the fears a seller might have about a buyer (and that buyer’s lender) performing with their financing.

2. The (misguided) perception that the seller must pay for some or all of the buyer’s closing costs.

On VA transactions, the seller is NOT required to pay ANY costs for the buyer, but is allowed to pay up to 4% towards a VA buyers costs. There are certain “VA non-allowable” costs for which a VA buyer is forbidden to pay, (for example No escrow fees, wiring, notary, tax service or processing fees are allowed to be charged).

So here is a good tip to help get a VA offer accepted, so this issue of who covers these VA non allowable fees does not become an issue when negotiating a purchase price. It is advised that the following language be inserted in to the purchase contract so the seller is not put off by the VA offer: “Seller not responsible for any buyer closing costs, regardless of the selected loan program. All agency-related “non-allowable” costs to be borne by lender”.

3. The (false) belief that VA appraisers are less generous in their valuations.

There is a common misconception that VA appraisals usually come in lower. While I am sure that a lot of people have had a VA appraisal come in lower, I am sure they can say the same about FHA and conventional financing too. Underwriters and appraisers will point out, that as long as the property is properly priced and the offer is reasonable, the VA appraisal should go smoothly. I have been averaging at least 2 VA transactions a month for the past few years and I have only seen a value come in lower in maybe 10% of these VA transactions, which is probably typical for other forms of financing too.

TIP. One of the most common appraisal “hits’ I have seen is when the purchase price is increased, above listing price, to accommodate for the seller-paid contribution. Be wary of that when submitting/accepting offers and have a back-up plan. If the appraisal does come in low make sure the buyer has additional reserves to potentially come in with more cash to close. Remember the lender will only approve financing to 100% of the appraised value.

Supporting our Troops

Personally I love working with members of the military, my wife has several family members in the military, so I know from first hand the special sacrifices they make for all of us on a daily basis, so it feels good to know you are giving back a little to our armed forces by helping them obtain home ownership. As a VA buyer is able to purchase a home with 100% financing and get an interest rate of 3.75% on a 30 year fixed, it really is a wonderful opportunity for our military friends to buy a home right now.

If you have any questions in regards to VA loans please feel free to contact me directly at 858-200-9602. My company is approved directly with the VA, so we are able to offer all the best programs that are available to our military friends. I look forward to chatting soon.