Michaels Mortgage Blog

Why Fannie Mae’s HomePath Purchase is a Great Option For Buyers

June 29th, 2011

There are many reasons for buyers to look at a Fannie Mae HomePath purchase in this market. For example, on a HomePath purchase there is only a 3% down payment requirement for first time buyers, only 15% for investors, there is no appraisal required and there is no mortgage insurance on any of their loans. As Fannie Mae just acquired over 53k foreclosed properties in the first quarter, up from 46k in the previous quarter, it’s no surprise that they just announced that they are extending their incentives for buyers and agents to purchase HomePath properties through October 31st, 2011, as a way to get these properties sold as quickly as possible (see details below).

What is HomePath and what are the benefits to buyers

Fannie Mae at the end of last month had over 153k foreclosed properties on its books, these are all listed under HomePath, Fannie Mae’s REO division. HomePath allows a borrower to purchase these properties with a low down payment, flexible mortgage terms, no lender-requested appraisal and no mortgage insurance. Here are the main benefits for a HomePath buyer.

Low down payment and flexible mortgage terms (fixed–rate, adjustable rate).
Down payment (at least 3%) can be funded by the borrower’s own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer.
No lender-requested appraisal.
No mortgage insurance.
Only 15% down payment for investment properties.
Only 660 credit scores required.
Many condo project requirements are waived.

New HomePath Incentives for buyers and agents

Fannie Mae just announced last week that they are extending their special offer of up to 3.5% in closing cost assistance for buyers and a $1,200 bonus for agents on HomePath properties sold through Oct 31st, 2011. Here are the eligibility details to qualify for these incentives.

Buyers must use home as their primary residence.
Initial offers must be submitted on/after June 14.
Buyers must use home as their primary residence.
Buyers are required to sign an Owner Occupant Certification Rider to the Purchase Addendum with all initial offer submissions.
Sale must close on/before October 31.
Other restrictions apply. For more information about the offer, including the terms and conditions, visit the Special Offers tab on www.HomePath.com

Search www.HomePath.com for the most updated list of properties. And remember, all owner occupant buyers enjoy a 15-day “first look” preview of all HomePath properties — without competition from investors — through Fannie Mae’s “FirstLook” period.

Comparing a HomePath Purchase vs FHA for buyers

Check out this Homepath vs FHA $300k purchase scenario below that shows the benefits for the HomePath buyer over the FHA buyer. On the left column we have the FHA buyer who has to put down a minimum down payment of 3.5%, vs the HomePath buyer on the right who only has to put down 3%.

As you can see above, even though the FHA buyer has a lower interest rate, the HomePath buyer has an overall lower monthly payment and will save an extra $257 a month because there is NO mortgage insurance (MI) on their loan. Also, as the HomePath buyer is getting their closing costs paid for by Fannie Mae (see incentive above) their total cash to close is just $9k, vs the cash to close of $20,895 due from the FHA buyer if they don’t get their closing costs paid for.

Also, the longer term savings are also significant for the HomePath buyer. See below, over the next 10 years on this particular scenario, the HomePath buyer will save $33,544 vs the FHA buyer.

Getting signed up with HomePath

Here is a link to the HomePath site for additional information on how to sign up for HomePath alerts and available property info etc. For information on applying to become a Fannie Mae listing broker visit the Doing Business with Fannie Mae page.

We are an approved HomePath Lender

We are an approved Homepath lender and we have been helping many buyers qualify for the HomePath loan program recently, so if you ever have any HomePath questions or scenarios, please feel free to contact me directly at 858-200-9602. I look forward to chatting soon.

Tags: Fannie Mae HomePath, HomePath Loans, HomePath properties, How to Qualify for HomePath, Why Fannie Mae's HomePath Purchase is a Great Option For Buyers
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The New 25 Year Mortgage is Now Available

June 14th, 2011

The 25 year fixed mortgage is a new loan product that is now being offered by some lenders, but not a lot of people know it exists. With rates now back at record lows again, the 25 year mortgage is helping provide buyers and homeowners with an opportunity to payoff their home 5 years earlier and become mortgage free faster just by using the same payment they already have on a 30 year mortgage! This is also a great option for new buyers in this market too, as an alternative to a typical 30 year mortgage.

Why a 25 Year Loan is a great option

Check out this scenario below. We have a homeowner on the left column who currently has a 30 year loan at 5% and his monthly payment is $1610, but he is able to refinance into 4.375% on a “25 year loan”" and his new monthly payment is only $1646, only $36 more a month!

Check out the “Total Cost Analysis” below that compares how much the borrower will pay back in interest and mortgage payments on each loan scenario. The 25 year loan will save the homeowner over $85,882 in interest & mortgage payments compared to the 30 year mortgage, and of course will now allow them to be mortgage free 5 years earlier, all for having almost the same monthly payment they have right now.

Building equity faster

Now check out this section below which shows just how much faster the 25 year loan builds equity. On year 10 the loan balance on the 30 year loan (to the left) is $244,026, whereas the loan balance on the 25 year loan is at $217,010. Now check out the balance on the loan at year 25 on the 30 year mortgage, it still has a remaining balance of $85,340, whereas the 25 year loan has a zero balance and is now paid off!

People now want to become debt free faster

If there is one thing this great recession has taught, it is that people now look at debt and especially mortgage debt in a much different light compared to earlier in the last decade, when leveraging debt was more popular. These record low rates we are getting again are a gift, because most people thought the days of rates dropping below 4.5% were gone forever once they started spiking up over 5% in February this year.

This new 25 year loan is presenting homeowners and buyers with another opportunity to reassess their mortgage and retirement goals and align a mortgage plan that fits with these goals. As ultimately everyone wants to get rid of their mortgage as fast as possible in the most affordable manner.

50% of US Households have a rate over 5.75%

Here is an interesting fact, a recent Wall St Journal article noted that 50% of US households have an interest rate over 5.75% on a 30 year fixed loan. By converting their loan to a 25 year fixed at today’s record rates, homeowners will not only lower their monthly payment but they will immediately take off 5 years off their loan too. This may also put some people on the path to an earlier retirement too if they know they can become mortgage free faster.

If you or anyone else you know is interested in looking at this 25 year loan option, please feel free to contact me directly at 858-200-9602. I look forward to chatting soon.

Tags: 25 year fixed loan, 25 year loan, the 25 year mortgage, The New 25 Year Mortgage is Now Available
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5 Tips That Will Ensure a Buyers Purchase Offer is Accepted

June 1st, 2011

With multiple offers going in on properties these days in many Real Estate markets around California, it is important that a buyers offer stands out from the crowd so it is given every chance of getting accepted! As full transparency is the key to getting an offer accepted, here are 5 tips that you can use that will strengthen a buyers offer and ensure your purchase offer stands out from the crowd.

1. Make sure the pre-approval letter advises what type of financing buyer is getting

It is a good idea to provide a pre-approval letter that acknowledges what type of financing the buyer is getting and how much of a down payment they are using. If the buyer is using conventional financing and is putting down 20% or 30% as a down payment, make sure to write this into the pre-approval letter, as this will usually place ahead of a VA purchase offer that has no down payment requirements, or a FHA buyer that has a 3.5% down payment. If the buyer is submitting a FHA or a VA offer, make sure to follow steps 2 through 5 to strengthen the offer.

2. Always Provide a DU Underwriting approval with the offer

It is important that all buyers have an offer that is accompanied by a “DU” underwriting approval. A DU approval is when the buyers loan application has been ran through Fannie Mae’s, FHA’s or VA’s Automated DU Underwriter (DU= Desktop Underwriter), quite simply the automated underwriter will either issue an approval or a denial.

An offer letter accompanied by a DU underwriting approval will always place ahead of an offer just accompanied by a basic pre-approval letter, as a DU underwriting approval shows the most important information needed on a buyers profile to give the seller a good idea of the strength of the buyer. For example it lists the credit scores, debt ratios, down payment and the type of loan they are approved for.

Also it is important to note that the DU underwriting approval must match up with the loan program the offer is submitted for (see # 1 above), it is not uncommon for example, to have a buyer who has a FHA DU approval but is submitting an offer for conventional financing.

3. Provide proof of down payment funds

Always provide proof of where the down payment funds are coming from for the buyer. Make sure to send over recent bank statements or statements from any account they are using for the down payment. Make sure there are enough funds in the statements you are providing to match the % of down payment the offer is for. As many times statements are provided but there are not enough funds to cover a 20% down payment and 2 months reserves for example. Or if the buyers are going FHA and are getting a gift from the parents, provide a copy of the gift letter from the parents.

4. Provide a copy of the buyers credit report (first page only)

Very few offers come across with proof of the buyers credit scores, so this is a good way to stand out. If the buyers credit scores are very good, list them on the pre-approval letter and point this out on the offer. Also provide a copy of the first page of the buyers credit report that lists the 3 credit bureaus and the 3 fico scores, make sure to black out social security numbers for privacy issues. This is a great way to provide full transparency on your buyers offer, so the seller can see the credit strength of the buyers profile.

5. Make sure everything on the buyers offer is current

It is not uncommon these days for a buyer to be submitting offers for up to 3-4 months, so sometimes the pre-approval letter or the DU underwriting approval has a date that is a few months old. So a good tip for a buyer that has been putting in offers for a few months now on various properties, is to make sure all the dates on the buyers approval letter, DU approval and all funds provided are current and within the last 30 days.

Full transparency is the key to get your offer accepted

With multiple offers going in on properties these days in many Real Estate markets around California, it is very important that a buyers offer stands out from the crowd so it is given every chance of getting accepted! Using these tips above will help strengthen a buyers offer. Remember, transparency is the key to a successful purchase offer these days, so the more work that is done upfront to ensure a buyers financial profile is solid, the better the chances of getting the seller to say yes to your offer.

If you have any questions about any of these tips above or you would like to chat about getting approved for financing, please do not hesitate to contact me directly at 858-200-9602.

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5 FHA Rules That Buyers & Sellers Need to Know About Flipped Properties

May 18th, 2011

Buying and selling flipped properties can be a real pain in this market. For example, did you know that lenders require a 2nd appraisal on flipped properties where the seller is making more than 20% within 90 days and is selling to a FHA buyer, and the buyer is not allowed to pay for this 2nd appraisal? Last month over 26% of all homes purchased in California came from investors, 31% were all cash buyers, and the median price paid by these investors was $198k. These are the homes that are being flipped and sold to first time buyers usually within a 90 period. As most first time buyers are using FHA financing, understanding the rules that are in place to get FHA financing on flipped properties is essential for success in today’s market place. Here are 5 important rules to follow that will ensure these transactions will close.

FHA Flip Rule Update

First of all here is an update about flipped financing from the FHA. Just recently the FHA announced that they do allow financing on flipped properties within 90 days of resale as long as certain requirements are met. But NOT all FHA lenders are offering financing on flipped properties within 90 days, as some of them are choosing not to fund this type of transaction. As there are only a few lenders that allow financing when the seller has both a net profit of OVER 20% and the property is being resold within 90 days, very strict rules are in place.

We have been funding quite a few of these flipped transactions over the past few months, so here are 5 of the most important rules you need to know to ensure the transaction will close.

5 Important Flip Rules to Follow to Ensure closings

* These 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. A 2nd Appraisal is required if more than 20% profit

Almost all the lenders I know that are offering FHA financing on flipped properties are requiring 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, yes someone else must pay for the 2nd appraisal fee! So make sure to get this addressed upfront who will pay for this 2nd appraisal fee.

2. A home inspection is required on all flips

A home inspection is required on all flips by the lenders. 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 reportt, not already called for by the appraisers, will be required to be repaired as a “concurrent with funding” condition, documented with a CIR to include photos.

4. All transactions must be arms-length

All 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 will have to be opened up during the transaction. Many times the investor who is selling the property will have an escrow company too, this is not allowed by some 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.

I hope you found some of these tips above helpful. If you have any questions about a FHA flipped property scenario, please do not hesitate to contact me directly at 858-200-9602 and I would be happy to help, I look forward to chatting soon.

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How to Lower Your Property Tax Bill

April 28th, 2011

I wanted to share some information that every homeowner should know. According to an industry trade group, more than 60 percent of U.S. homes currently have their property taxes over-assessed as a result of falling home valuations and inaccurate county records. Check out this chart below, it shows that since 2006, while home values have dropped roughly 25% on average nationwide according to Case/Shiller, National property tax revenue since 2006 has increased from $375 Billion to $476 Billion or 22%. This was a cash cow for all the states during the housing boom, but they now need to reassess their taxes down to meet current housing values. Over-assessment creates a bigger annual tax bill than for which you should otherwise be responsible.

How To Appeal Your Home’s Real Estate Taxes.

The good news is that, in most counties, having your taxes lowered can be as simple as filling out a form and providing proof of valuation. Usually in the form of an appraisal. NBC’s The Today Show ran a piece last year that remains relevant today. It’s loaded with tips to help you drop your tax bill, most of which won’t require attorneys or other “expensive” third-parties. Here is the link to that show which will help you with these points below NBC’s The Today Show link

* When to file your tax bill dispute for the best chances of winning
* How to pull your “property card” and check for tax bill-raising errors
* What to do if the taxing authority turns down your request

Contesting your tax bill doesn’t need to be expensive or time-consuming. It just helps to be prepared. Do your research and make your case.

Did You Know That 50% Of Tax Appeals Are Successful

If you can win your home’s tax appeal, you stand to save good money. It’s worth the effort if your home is over-assessed. After all, it’s estimated that half of all contesting homeowners are successful with their appeals. During the appeal process, you may want a copy of your most recent home appraisal (your Loan officer or Real Estate agent should have a copy) if you had one done in the past 12 months. The more evidence you can provide, the better your chances of a good result.

If you know of anyone else who could benefit from this property tax information, please do forward this message along. Also, if you know someone that is looking to lower their mortgage payment or is looking for financing to purchase a new home, please feel free to pass along my information or have them contact me directly at 858-200-9602.

Tags: How to Lower Your Property Tax Bill, lower property taxes
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Housing Affordability Rises to Highest Level on Record

April 19th, 2011

Housing Affordability has risen to its highest Level on Record according to recent figures. Data from the National Association of Realtors show that its Housing Affordability Index reached a historical high in January of this year. This index factors in the median home price, the interest rate, the minimum qualifying income and overall PITI payment a buyer will get on a purchase. As buyers are continuing to hear and read so many mixed signals about the housing market from the media and are probably not sure what to believe, this affordability data proves that there has never been a more affordable to buy a home than today.

It’s never been more affordable to buy a home

This chart below is the “Housing Affordability Index” that NAR uses to calculate housing affordability. (a higher index number means housing is more affordable; a lower index number means housing is less affordable). In January 2011 it recorded a highest ever figure of 191 See Here

What this means is that a family earning the median income has 191% of the income needed to qualify for a mortgage on a median-priced home.

Comparing housing in California today to housing in 2007!

Here is a Californian housing affordability index chart that compares housing affordability during 2007 with today’s housing market. It factors in the median price, PITI mortgage payment, minimum qualifying income for a buyer, and the interest rate.

As you can see by the 2nd quarter of 2007, the median price of a home in California was an incredible $503,560, and it took an average of $95k (as of 2011, $62k is the actual median income for a family in CA) in minimum qualifying income for a family to afford the median price of a home, the mortgage payment was $3,193 a month! It was during this time frame when housing affordability was getting completely out of reach for many people and home prices and mortgage payments were becoming unsustainable. Shortly after in August 2007 was when the housing market exploded.

Now compare those figures with the figures for the 4th quarter of 2010, which shows that housing has never been more affordable based on how NAR calculates their housing affordability index. Because in the 4th Quarter of 2010, it only took a family to have a minimum income of $39,600 to qualify for the median price of $256,220.

But check out Q1 in 2009, this is when housing prices hit their lowest price point, when the median price of a home was only $210,490. But by Q4 2010 the median price of a home was over $250k again. I think it is more than fair to say that when we consider the “Cost” to buy a home in terms of price and financing, we are pretty much at the bottom of the market. Sure there may be a little more depreciation in certain pockets of the market, but overall when one factors in price and overall cost, this data proves there has never been a more affordable time to buy a home than now.

What will happen when rates increase?

Here is a great chart to share with buyers that ties in with affordability. It shows just what the cost of waiting to buy will do a buyer’s monthly mortgage PITI payment as interest rates climb from 4%, to 5% and 6%. As you may recall interest rates were at 4% last November, but have already jumped to around 5% in just the past month, this 1% increase in rate means that a buyer loses 10% in purchasing power, or in other words a buyer needs a 10% reduction in price to keep the same payment as the buyer who got an interest rate of 4%.

Check out what happens on a $400k purchase on this chart, the payment jumps almost $400 a month from $1990 to $2380 when the interest rate jumps from 4% to 6%, this means that for someone who chose not buy when rates were 4% last November, they would need a 20% price reduction when rates are 6% to keep the same PITI payment.

All economists are predicting that interest rates will rise over 6% by 2012 See Here, when this happens, a buyer will lose another 10% in purchasing power, and will need another 10% reduction in price to keep the same payment as he can get today with rates at 5%.

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

Tags: Housing Affordability Rises to Highest Level on Record
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Why Sellers With FHA Loans Should Close at the End of the Month

April 6th, 2011

Did you know that if a FHA seller sells their home early in the month, they are charged interest through the rest of the month by the FHA? This is a fact that not a lot of sellers are not aware of because it is only the FHA that calculates interest on a full months basis, whereas conventional loans etc only calculate the interest through the closing date. This is why it is recommended that all sellers who have FHA loans should have their contract scheduled to close at the end of the month, so they can put as much money as possible in their pockets from the sale.

The FHA is overcharging sellers

Let’s say for example, a seller pays off a $400k FHA-insured mortgage on April 5th and the seller has a 5% interest rate, the seller will be charged an extra $1640 in interest to cover interest through the remainder of the month. By scheduling the contract to close at the end of the month, this will put that $1640 back in the sellers pocket.

Quite frankly how the FHA are calculating this interest is just wrong! Many sellers today are already trying to squeeze minimal profits from their homes, and these profits are rightfully theirs. But as the Govt and FHA need every penny they can these days, this is a huge source of income for the FHA if you consider they do this on every transaction, in fact they are raking in over one Billion dollars a year alone through this program.

Supposedly the FHA are looking into this and are exploring methods to move to a per diem method that everyone else uses, I have a feeling this “change” will probably take a while. But considering the technology that is available out there today, I am sure someone could figure this solution out with the stroke of a keyboard.

This is why FHA homeowners who do a FHA refinance will always be advised to close at the end of the month, so they don’t get charged double interest. So make sure your FHA seller too is aware of how the FHA will calculate their payoff on their home and recommend an end of month closing, so they can put as much money in their pocket when they sell their home.

FHA set to increase Buyers PMI payments April 18th

As a reminder, the FHA are set to increase mortgage insurance (PMI) payments on April 18th on all NEW loans. This just means the buyer has to be in contract by the 18th of April. This increase is the same as spiking someone’s interest rate by .375%.

If you remember, it was only last year on October 4th 2010, that the FHA just increased their MI. As this is already the 2nd monthly PMI increase since that announcement, I have no doubt the FHA will continue to increase this monthly PMI % on buyers in the near future as they try to shore up their finances. Which means of course loans will only get more expensive for future buyers.

Show Buyers how much this PMI increase will cost them if they wait to buy after April 18th

To help get some FHA buyers off the fence, here is how to calculate how much extra in PMI a buyer will pay if they decide to wait to buy after April 18th. To find out what they would currently pay in PMI, take their current loan amount and multiply by .009% (.90%) and then divide by 12..this equals the lower monthly PMI payment. For the NEW PMI increase, multiply their loan amount by .0115% (1.15%) and divide by 12 and this is the NEW higher monthly PMI payment. The difference in both amounts is the “Additional Cost in PMI” per month.

As PMI must be kept for a minimum of 5 years on all FHA loans, multiply the monthly PMI increase by 60 months and this is how much they will pay extra in PMI over the next 5 years if they decide to wait to buy. For example on a FHA loan at $417k, they will pay an extra $86 a month in PMI, so over the next 5 years this will cost a buyer $5,160 by waiting to buy after April 18th. This is a large sum of money to some buyers and may convince some buyers to get off the fence to buy now.

4 Must-Ask questions for all FHA condos

probably get asked the following question as much as any other question, “what are the FHA requirements for a FHA buyer to get financing on a condo”. If your client is interested in buying a condo and obtaining FHA financing, it is a good idea to make sure you have the following 4 questions answered upfront to ensure the complex will meet HUDS minimum standards and qualify for FHA financing. Otherwise it is risky going into contract and waiting for the HOA cert to come back a week or two later, because most of the time just one of these issues below may kill a transaction.

1. Is the complex currently FHA approved? use this link to check https://entp.hud.gov/idapp/html/condlook.cfm If the complex is not FHA approved it will not qualify for FHA financing.

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

3. How many of the units are delinquent on their HOA dues? The majority of lenders require that less than 15% of the units be delinquent. FYI, I have a couple of lenders who will accept more than 15% HOA delinquencies as long as the other 4 questions come out positive.

4. Is there any current litigation in the complex? FHA will not lend if there is any litigation in the complex.

Doing the homework upfront is critical

Getting these 4 questions answered ahead of time will save everyone a lot of time and hassle on a transaction. Many of the underwriters I talk too are advising that they are having to decline a lot of FHA files because one of these issues above pop up when the HOA cert comes in from the condo complex.

Myself and my assistant always do as much homework as possible upfront with our condo buyers before they go into contract, as we want to make sure we have all 4 questions answered above. Doing this homework just ensures that the transaction will close escrow. There is nothing worse for everyone involved, than working on a transaction for months helping a buyer find a home and getting them into contract, only to find out a few weeks later they do not qualify for the loan.

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How To Generate More Buyers By Helping Clients With Their Credit

March 28th, 2011

Did you know that Fannie Mae now charges a buyer with a 699 credit score an extra 1.5% fee on a home loan compared to a buyer with a 740 credit score, that is $6,000 extra on a $400k loan amount. It has never been more important than in today’s housing market to have excellent credit scores, especially as the broke government entities Fannie Mae, Freddie Mac and FHA are now charging buyers astronomical fees to raise funds to shore up their depleting finances. There is also a huge pool of potential buyers who have had their credit damaged during the past few years of the housing crisis, who need a little help to improve their scores to get in a position to buy again. Here are 5 credit tips below that you can share with your clients, family and friends so they are given every chance to improve their credit scores and save as much money as possible when they buy a home.

Fannie Mae is charging buyers ridiculous loan fees

So how much extra does Fannie Mae and Freddie Mac charge a buyer for less than perfect credit? Below is a table of Fannie Mae’s Risk Based “Loan Level Price Adjustments” (LLPA’s). This is what lenders use to determine what interest rate a buyer will get on a loan. These LLPA’s take into consideration a buyers credit score and down payment on a home loan scenario. These LLPA’s are subtracted from a borrower’s loan pricing, which pushes their mortgage rate higher.

For example, a borrower with a FICO score between 680-699 who has a 20% down payment, will pay an extra 1.50 point cost on their loan compared to a buyer with a 740 credit score, this is $6,000 on a $400,000 loan. A borrower has two choices how to pay this fee, they can either pay this additional $6,000 as cash as closing, or they will have to take a higher interest rate with the fee built in, which 99% of buyers end up doing.

Check out the buyer with a 620 score, he will pay an extra 3% in fees for the same rate as a 740 buyer, that is $12k on a $400k loan..OUCH. Of course the buyer with the 620 score will probably go with FHA financing as they less credit score driven, but then of course the buyer will have additional mortgage insurance to pay. As the government now funds over 90% of loans in the market place, it is fair to say that the government is broke and they have us cornered when it comes to getting financing. So improving their credit scores is one way that consumers can save themselves money.

Falling Credit in the US

Figures provided by FICO Inc. show that as of 2010, 25% of consumers (about 43 million people) now have a credit score of 599 or below, making them a big risk for lenders. This number is up from the historical norm of 15%. At the other end, interestingly, the number of consumers who have a top score of 800 or above has increased in recent years – mostly attributed to them cutting spending and paying down debt.

Here is a chart below that shows how credit in the US was before the recession and after the recession. As you can see there are a lot of people who have suffered some sort of credit damage from the financial crisis.

Creating buyers for tomorrow

There is no doubt that there is a shortage of qualified buyers out there these days. I would say only 1 out of 4 applications that hit my desk is able to get a loan approval, the rest can’t qualify yet mainly due to credit issues. This is because many of these people have suffered credit damage over the past few years. But, there are many of them who are actually not that far away from being able to qualify to buy a home, as they just need a little guidance and help and just need to be put on a plan so they can purchase as soon as possible.

What we must remember is that the financial crisis started in 2007, so there are probably a lot of people who will have already suffered a short sale, foreclosure or Bankruptcy over 2 years ago. For example, the FHA only requires 2 years after a Bankruptcy before a buyer can qualify for a home loan again. Therefore I think it is a great idea to reach out to as many people as possible, i.e past clients, friends and family who maybe have suffered some credit damage recently and ask them if they need some help getting their credit repaired, so they can get in a position to buy again. So what can we do to help?

5 ways to increase credit scores-and fast

To start with here are 5 great credit tips that you can share with clients, friends and family to implement right away, so they can give their scores an immediate boost.

1. Get Your Report
The three main credit bureaus, Equifax, Experian®, and TransUnion®, are required by law to provide you with a free copy of your credit report once every 12 months. To request your free copy (one from each company) visit www.AnnualCreditReport.com or call 1-877-322-8228.

2. Create Some Balance: The trick is to get and keep your balances below 30% of your credit limit on each credit card. Remember, if you pay off any credit cards completely, do not close your accounts as this will negatively affect your scores.

3. Know your limits: Make sure that your credit card issuers are reporting the correct limits on your accounts to the three major credit bureaus. Without an available limit, your account will appear to be maxed out at its highest reported balance each month. This could cost you up to 80 points in certain instances. Also, if you’re in very good standing, ask your creditor for a lower rate or higher credit limit. This will increase the gap in the debt you owe versus the credit you have available. Sometimes hinting about closing an account can suddenly bring out the generous spirit of certain card issuers. Give it a try. The worst they can say is no.

4. Protect Your Interests: Your credit is calculated based solely on the information available to your creditors. For example, if you have a HELOC, make sure it’s listed as a mortgage or an installment account on your credit reports and not a revolving debt. If you had a bankruptcy, be sure that all items associated with the bankruptcy are being reported correctly, that is with a zero balance. This action could increase your score by 50-100 points. Because simple mistakes like these can wreak havoc on your credit score, it’s important to monitor your credit every four to six months.

5. Even the Score: If you find information on your credit report that you believe is inaccurate or incomplete, then you have the right to dispute it free of charge. For the fastest results, visit the appropriate credit bureau’s website and file a complaint on-line. If supporting documents are necessary, you have to file your dispute by mail.

Educating consumers about credit scoring

I think it is imperative that consumers begin to learn more about credit scoring. I also think it is important that we teach consumers and buyers about credit scoring, so they have every possibility to score the lowest interest rate on their loan, because as we seen above, a simple increase in credit scores from 699 to 740 can save someone $6000 on a $400k purchase loan and get them a lower rate. Here are some resources to share. Here is a credit score quiz www.creditscorequiz.org that you can share with all your clients, family and friends so they can test their knowledge of credit scoring. Also here is a new site just released by FICO http://scoreinfo.org/ that you can share too, so they can learn how credit scoring works and what they can do to raise their scores.

Here are two other ways to offer help to anyone you talk to, so you can let people know that you can help them get their credit restored and be put on a plan so they can purchase a home soon. This will ensure you have a pool of clients who will be able to buy in the future.

The “Credit Analyzer” tool

Lets say you have a buyer who has a 600 credit score and needs a 620 to qualify for FHA financing, or you have a client with a 699 score and they want to get their scores over 740, what is the fastest way to get those extra few points that will get them approved for financing or save them a ton of money in fees?

One of the tools we use is the ”credit analyzer” system which our credit reporting company offers for our clients. This predictive credit scoring system will calculate how high scores will go if certain actions are taken in regards to credit, this way a potential buyer now has a definite plan of action to improve their credit scores to meet the qualifications needed for a loan. Sometimes for example, just paying down a $1k credit card a few hundred dollars so the new balance is at 30% of the credit card limit will do the trick. Results from this program can take as little as a few business days.

What if Major Credit Repair is needed?

But what if you know someone who needs serious help getting their credit fixed? i.e they have liens, judgments, short sales, or they need help removing debts from Bankruptcy etc. I send all my clients to Linda Ferrari, you can check her website out at www.lindaferrari.com .She is one of the foremost credit experts in the country and has written books etc on the topic of credit repair. Linda is able to put most people she works with on the fast track to purchasing a home as soon as possible. Her programs usually last 3-6 months. This is a great way to ensure that you will have a pool of buyers that will be able to qualify in the future.

I hope you found some of these tips useful and I hope they save someone lots of money. If you know of anyone that needs a little help improving their credit scores so they can qualify for a loan or a better interest rate, or you know someone that needs help getting pointed in the right direction to repair their credit, feel free to contact me directly at 858-200-9602 and I will be happy to help out. I can also point you in the right direction if you want to get in touch with Linda if needed. I look forward to chatting soon.

Tags: 000 extra on a $400k loan amount, Did you know that Fannie Mae now charges a buyer with a 699 credit score an extra 1.5% fee on a home loan compared to a buyer with a 740 credit score, that is $6
Posted in Michaels Housing and Market Updates | No Comments »

FHA Announces Another Increase in Buyers MI Payments on April 18th

February 22nd, 2011

The FHA have just announced they are going to increase buyers mortgage insurance “MI” payments AGAIN on all new loans after April 18th by .25%. This is now the 2nd increase in just the last 7 months, as they also hiked MI payments last October. This will mean another significant increase in a new buyers overall mortgage payment. For example it will increase payments over $86 a month on a loan amount of $417k, which is the same as spiking someone’s interest rate by .375%.

Why is the FHA raising MI payments again in this market?

Last year the FHA announced its intention to raise its mortgage insurance premiums in a two-step process that was part of a larger program to put itself back on a firm financial footing. FHA’s reserve funds have been depleting and needed shoring up immediately to withstand future imminent defaults. As this chart below shows, the FHA loan loss reserves are being eaten up fast, so this new increase in MI is not that surprising.

If you remember, it was only last year on August 12th 2010 that the FHA announced see here that they had passed a law where they can increase the monthly MI % up to a maximum of 1.55% (It’s currently at .90%) at anytime in the future if need be. As this is already the 2nd monthly MI increase since that announcement, I have no doubt the FHA will continue to increase this monthly MI % in the near future as they try to shore up their finances. Which means of course loans will only get more expensive for future buyers.

What can a New Buyer expect to pay?

Effective for new loans that have their FHA case # pulled (go into contract) on or after April 18th 2011, the FHA will increase the annual premiums collected on a monthly basis by .25%. For FHA traditional purchase and refinance products, the annual premium, shown in basis points below, is to be remitted on a monthly basis, and will be charged based on the initial loan-to-value ratio and length of the mortgage according to the following schedule:

Loan to Value Monthly MI %

= or <95% financing increased from .85% to 1.10%

> 95% financing increased from .90% to 1.15%

Let’s look at a loan example comparing someone buying before and after April 18th

Buying Before April 18th

Let’s say a buyer wants to buy a new home for $425k and is using a 3.5% down payment. They get an interest rate of 4.875% on a 30 year fixed loan. The monthly MI is .90% and the upfront funding fee is 1%.

Purchase price $425k
3.5% down payment is $14875
Loan amount is $410,125
Upfront FHA fee (UFMIP) is $4,101
Total amount financed is $414,226
MI factor at .90% = $310 monthly

Buying After April 18th

Purchase price $425k
3.5% down payment is $14,875
Loan amount is $410,125
Upfront FHA fee (UFMIP) is $4101
Total amount financed is $414,226
MI factor at .90% = $396 monthly=$86 higher

This new MI % increase from .90% to 1.15% represents an increase in the borrower’s payment of $86 a month. As borrowers have to keep the MI for a minimum of 5 years, over the next 5 years this MI increase alone will cost a buyer an additonal $5160 ($86 x 60 months). This monthly MI increase in payment is also the same as increasing a buyer’s interest rate by .375%. This is a significant amount of money for many families on a tight budget and may put a certain price range out of affordability for some buyers.

The unintended consequences of this new MI increase

There are always unintended consequences by these new changes or rulings. Ultimately the FHA have good intentions, as they do need to shore up their reserves if they are bleeding money, but what will happen is that they are going to shrink the pool of qualified buyers too. Now there will be borrowers who will not be able to qualify for a loan because the extra MI payment will push their debt to income ratios over the required limit.

Many first time home buyers already qualify for FHA loans with their debt to income ratios right at or just below the FHA maximum. This is another talking point to have with a buyer, to make sure this new increase in payment will not prevent them from qualifying for their desired purchase price anymore.

Making sure buyers know how much their payment increases after April 18th

It is very important that buyers understand the difference in their payments before and after April 18th and that there will be an overall increase in their monthly payment come April 18th! I am presenting all my buyers with a “before and after” April 18th scenario, so they can make an informed choice about their mortgage budget and buying plans. Because for example, an $86 a month increase in payment can mean a buyer can no longer afford a certain price range and now needs to look at different options.

An update on interest rates

Mortgage rates have been continuing to rise and are now at 5%, remember they were just at 4% back in November! Now the question is where will they go from here? In their most recent rate forecast, MBA economists said they expect rates on 30 year fixed loans will climb to an average of 5.5% and higher by the 3rd quarter of 2011 and to an average of 6.1% during the final 3 months of 2012.

But on a positive note, as you can see per this chart below, mortgage rates are still at historical lows when you compare them with interest rates over the past 40 years. For example, did you know that the average interest rate since 1970 is 9%. So for anyone looking at buying a home right now, they can still get a rate that is at 40 year lows.

Considering that this mortgage insurance increase is coming soon and that rates are continuing to rise, there is no doubt that now is a great time to buy for any people that are looking to get the most cost effective financing. If you have any questions regarding any of the inforamtion above, feel free to contact me directly at 858-200-9602. I look forward to chatting soon.

Tags: FHA Announces Another Increase in Buyers MI Payments on April 18th, FHA increase in MI, FHA MI increase, higher MI payments
Posted in FHA Announces Another Increase in Buyers MI Payments on April 18th | 1 Comment »

3 Tips To Ensure Your VA Purchase Offers Get Accepted

February 17th, 2011

There is little doubt that VA buyers probably get to take advantage of the best financing program out there, as all VA buyers can qualify for 100% financing. So if VA home loans are so great for buyers, then why do some sellers discriminate against VA purchase offers? Many people will argue that sellers discriminate against buyers using government- assisted 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 valuations. Here are 3 tips below to debunk seller held credit myths about VA financing so you can get your offers accepted.

3 Tips to Get VA Offers Accepted

Here are the 3 tips to use when presenting an offer for a buyer using VA financing, so to ensure your offer will have a better chance of getting approved.

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”. What we can do here is 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 within a prescribed time period.

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

The seller is NOT required to pay ANY costs for the buyer, but is allowed to pay up to 4% for VA loans. 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).

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. It is advised that the following language be inserted in to the CAR purchase and sale agreement 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.

This is a common misperception that VA appraisals usually come in lower. While I am sure that some 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 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 less than 10% of transactions.

One of the most common appraisal “hits” on the appraisal 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.

VA Requirements on REO’s and short sales

Be careful with REO’s and short sales for VA buyers, as these properties must meet the VA minimum property requirements (MPR’s). See VA appraisal requirements on foreclosed properties Properties that can be repaired prior to closing to satisfy the MPR’s may be appraised as if the repairs were done. FYI the seller is expected to pay for any repairs.

VA $8k Home Buyer Tax Credit Extension

Remember there are only about 45 days left for VA buyers to take advantage of the $8k home buyer tax credit extension. This respresents a great marketing opportunity to try and get some additional VA buyers. As a reminder here are the rules for qualifying again and also here is a link to the IRS website so you can verify the right information to tell your clients. IRS rules on extension of 8k tax credit for VA buyers

The $8k is available for first time buyers only.
The $6500 is available for any buyers who have not owned a home in 3 years
The contract has to be signed and in escrow by April 30th to close by June 30th
The veteran must have been on active duty outside the US for at least 90 days between December 31st 2008 and May 1st 2010, Otherwise they cannot qualify.

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

Posted in 3 Tips To Ensure Your VA Purchase Offers Get Accepted | No Comments »

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