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    • Tips to Help Your Purchase Offer Stand Out From the Crowd

    March 26th, 2015

    In today’s competitive housing market where multiple offers are the norm, it is very important that a buyer’s offer stands out from the crowd. Buyers and Real Estate Agents have to get creative with their offers and also provide full transparency upfront, so the seller will feel comfortable that a buyer will be able to obtain financing and close escrow. Here are 7 tips that will help your purchase offer stand out from the crowd and get accepted.

    1. Include a personal cover letter with your purchase offer

    A good idea in this competitive housing market is to include a personal cover letter with the offer that introduces your family and explains why you are the right candidate to purchase the home. Include a family picture too.

    If you can tug at the heart strings of the seller, they may be more inclined to choose your offer over others. Many agents and buyers tell me this strategy works!

    2. Your loan approval letter verifies your type of financing

    Include a loan approval letter with your offer that clearly explains what type of financing you are getting and how much of a down payment you are using, make sure it is also signed by the lender and lists their contact info too, so the seller can call and verify all the information.

    If you are qualified for conventional financing and putting down 20%, make sure to write this into the loan approval letter, as this will usually place ahead of an offer with a lower down payment. If you are submitting a FHA or VA offer and are using a limited or no down payment, follow the rest of these steps below to strengthen your offer.


    3. Include a DU underwriting approval with your offer

    Include a DU underwriting approval with your offer. A DU (desktop) underwriting approval is when a buyer’s loan application and credit report has been ran through the conventional, FHA’s or VA’s automated underwriting systems and was approved.

    A DU underwriting approval displays the most important information on a buyer’s profile, which gives the seller a better idea of the strength of the buyer. For example, a DU approval displays a buyer’s credit scores, debt to income ratios, assets, reserves, down payment and the type of loan program they are approved for.

    4. Provide proof of down payment funds

    Always include proof of down payment funds along with your offer. Make sure the name on the bank statements, or any other account being used for the down payment, matches the buyers name on the contract and approval, and also verify there are enough funds in the statements to cover the down payment listed on the offer.

    If you are getting a gift from a family member, provide a gift letter and proof of funds from the donor.

    5. Increase your deposit

    Want to show a seller how serious your offer is?Consider putting down a bigger deposit in earnest money. This may seem risky for some, but earnest money is there for a reason. If you are uncertain about putting a “noticeable” amount of earnest money on the table, it may be a sign to the seller that you are uncertain about the house itself.

    Assuming you hold up your end of the bargain and you have the right contingencies in place, it won’t cost you any more in the long run since the deposit goes towards your down payment if financing is involved.

    6. Be flexible and don’t ask the seller for credits to cover closing costs

    It’s a good idea to ask the seller’s agent upfront what you can do to make the offer more enticing to the sellers.

    For example, can you be flexible on the closing date for the seller? Also, a purchase offer asking for seller credits to pay for your closing costs will usually place behind an offer that does NOT ask for any seller credits. Some people assume just because a buyer does not have funds for closing costs, to just ask the seller to cover them.

    SOLUTION: To make a buyers offer more competitive, the lender can pay for ALL the buyers closing costs with a lender credit.

    How does this work? It’s easy, instead of taking say a 3.875% 30 year fixed rate, just take a slightly higher rate of 4.25% instead, and now there is a lender credit of roughly 2.5% available that can be used to pay ALL a buyers closing costs.

    Not only is this a good negotiating tactic so the buyer and seller can strike a deal, but of course it saves a buyer money too. We present this option to all our buyers.

    Another Tip, is to offer to pay for the sellers Owners title policy and transfer tax, these fees amount to roughly $2,500 on a $400k home, so this is another way to sweeten the deal for the seller to accept your offer. If the buyer does not have the funds, we can also pay for these fees with a lender credit.

    7. Close the Transaction Faster

    Being able to close a transaction faster is another way to entice the seller to accept your offer in this competitive market. For example, if a seller is reviewing 3 offers, and there is a 21 day offer, a 30 day and 45 day offer, many times the seller will take the faster closing.

    My company Citywide Financial Corp can close a Conventional, FHA or VA Purchase Transaction in 21 days, and even 17 days if a major rush is needed. We have an outstanding team set up and dedicated to help close transactions fast.

    I hope you found these tips useful. I review offers every week with Realtor partners, which is a great opportunity to look at the different types of offers that buyers are submitting in this current market. The majority of offers I review usually only have 2-3 of these items above provided.

    Full transparency upfront is the key to getting an offer accepted these days, because usually the “Path of Least Resistance” is what we look for when reviewing offers! As many times the offer that is presented the clearest, is flexible and addresses any issues upfront, is the offer that will be picked!

    If you have any questions about any of these tips above or getting approved for financing, please do not hesitate to contact me directly at 858-442-2686. I look forward to chatting soon.

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    Posted in Michaels Housing and Market Updates | No Comments »

    Own vs Rent: How Much Home Can You Purchase For $2,500 a Month?

    November 15th, 2014

    In many parts of CA it is now cheaper to own a home versus rent, especially when you factor in all the financial benefits and tax deductions you get to take advantage of when you own a home. I wanted to share a “Own vs Rent”analysis report that shows how much home you can purchase for $2,500 a month, vs renting for the same monthly payment.

    With Rising Rents, Owning a Home is a Better Investment

    With monthly rents continuing to rise in most parts of California, home ownership is looking like a much better investment for renters.

    As you can see below, just a 4% increase in annual rent, can drive a $1,500 monthly rent up to $1,974 in just 8 years, an increase of $474, which is a 32% increase in overall rent.

    When you own a home, it is a great hedge against inflation for the future, as you can obtain a low fixed rate and monthly mortgage payment that will never change. Whereas rent will continue to go up over time.

    Compare Owning vs Renting for $2,500 a month

    In many parts of California, $2,500 a month is an average rent that many people are paying. What many don’t know, is how much home they can purchase using the same monthly payment.

    Instead of paying $2,500 a month in rent to your landlord, did you know you can purchase a $435,000 home with only 5% down conventional financing, and also have No monthly mortgage insurance “PMI”, for the same total monthly payment.

    Here is the example of a “Rent vs Own” report comparing renting versus owning for $2,500 a month. On the left column is paying rent of $2,500 a month.

    On the right column, you can purchase a property for $435,000 with only 5% down, with a 4.25% 30-year fixed rate with No monthly PMI. The total monthly mortgage payment is $2,470 a month.

    As you can see above, when you own a home, you will get to take advantage of tax benefits of $639 a month and also pay $569 a month towards principal. When you pay monthly rent, there are no financial benefits.

    Rent vs Principal paid over 10 years

    In this section of the report, it shows the rent versus principal paid over 10 years. When you own, you will have paid down the principal on the loan by $84,950 over the next 10 years, whereas with renting, you will pay $343,000 in rent over the next 10 years.

    Compare Net Worth in 10 years

    In this section of the report, it shows the net worth after just 10 years of owning a home. You will accumulate a net worth of $201,963 over 10 years from the financial benefits of home ownership.

    These 3 main financial benefits to owning a home are, paying down the principal on the loan, substantial tax deductions at tax time, and accumulated equity gains due to appreciation on the property.

    In this example below, I used a conservative 2% annual appreciation rate (*homes have been appreciating on average 5% annually over the past 5 years). When renting, you will have a zero net worth due to paying rent to the landlord for the next 10 years.

    As you can see above, there are lots of financial benefits you can gain by owning a home. 

    If you are short on down payment funds, check out the new 1% down conventional loan program with No monthly mortgage insurance “PMI” (Click HERE), there is also a Q&A section in the article too.

    This 1% down program also allows for the 1% down payment to be gifted. There is also a lender credit available for closing costs. Ask me for more details on this program.

    Compare Current Mortgage Rates To Average Rates Over the Past 40 years 

    As you can see below, the average 30 year fixed mortgage rate over the past 40 years is roughly 8.7%, and 6.29% over the past decade! Compare this to current rates around 4%.

    Current mortgage rates are not that far off all time lows, which leaves the cost of borrowing money very cheap historically.

    It is still a good time to get approved for financing to purchase a home and lock in a low fixed rate.

    The Impact of Rates on Buyer Affordability

    It is important that potential buyers also understand the impact of rates on their purchasing power. Changing mortgage rates do more to influence home affordability than changing home prices.

    This chart below shows the “impact of rates on buyer purchasing power or affordability“. As you can see, when rates increase by 1%, a buyer loses 10% in purchasing power.

    For example, see below how the payment at the 4% rate on a $400k loan, is roughly the same payment as the 5% loan at $360k, a loss of 10% in purchasing power for a buyer.

    Mortgage rates have been declining recently, so buyers are gaining  in purchasing power and affordability.

    Tips for Homebuyers

    When you crunch the numbers and weigh up all the financial benefits that come with home ownership, and compare it to what you are paying in rent, you will be surprised how much home you can actually afford to buy in many cases.

    A good idea is to talk to your accountant when you are doing your taxes, and ask them what the mortgage interest deduction and deduction for real estate taxes will do for your income, you will probably find it is now cheaper to own than to rent in many areas.

    When you own a home, it is a hedge against inflation for the future. When you own a home, you will get a low fixed rate mortgage and your mortgage payment will never change. Whereas rent will continue to go up over time.

    Homebuyers love these “Rent vs Own” reports, because it shows them all the financial benefits and different figures they need to see and understand when making the decision to purchase a home.

    If you would like to review one of these “Rent vs Own” reports like this example above for a specific purchase price, please feel free to contact me directly at 858-442-2686.

    P.S. If you would like to be updated faster on important industry news or any new loan programs that come out, please join my Facebook page .

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    4 Low Down Payment Options With No PMI for Jumbo and Non Jumbo Homebuyers

    October 31st, 2014

    As the housing market continues to strengthen in many areas, lenders are coming up with creative low down payment financing options with No monthly mortgage insurance “PMI”, to capture more market share and drive more buyers their way. There are 4 terrific financing options now available for home buyers in California who have a limited down payment and do not want to pay monthly PMI, and this includes options for jumbo buyers who do not want to use all their cash towards a down payment.

    4 low down payment options with no PMI for buyers

    Too many buyers in today’s marketplace assume they have to take a loan with monthly mortgage insurance “PMI” if they have a limited down payment, or they need to put down 20% to eliminate the monthly mortgage insurance on a jumbo loan.

    Home buyers in the CA market now have 4 different financing options available, if they a limited down payment and do not want to pay monthly mortgage insurance.

    1. Put just 3% down and you can finance a loan up to $417k with no monthly mortgage insurance “PMI”.

    2. Put down 10% and you can finance up to $625,000 with no PMI, which is the conventional jumbo loan limit in LA, OC or SF. It is $546,000 in San Diego.

    3. Put down 15% and you can finance a loan up to $1 million with No PMI. This option is available on a ARM and a 30 year fixed.

    4. Put down just 10% and you can finance a loan up to $3 Million with no monthly PMI. This option is also available on a ARM and a 30 year fixed. This loan option is available for the best qualified buyers, ask me for details how to qualify.

    Compare the Savings on a 10% Down $600k Purchase, With and Without Mortgage Insurance

    On this $600k home purchase example, we will compare the savings on a conventional 10% down loan, with and without monthly mortgage insurance, and a FHA 10% down loan with monthly mortgage insurance.

    To calculate property taxes, we will also use 1.2% of the purchase price, so $600 a month, and $85 a month for a homeowner’s insurance policy, so we can calculate what the total monthly PITI (principal and interest, taxes and insurance) payment is for each scenario.

    Option #1. The figures on the first column, is a conventional 10% down loan with No PMI. The rate on a conventional 30 year fixed with No PMI is 4.25%. The total monthly PITI payment is $3,341.

    Option #2. The figures on the second column, is a conventional 10% down loan with PMI. The rate on a conventional 30 year fixed with monthly mortgage insurance is lower at 4.125%, but there is also monthly mortgage insurance of $311. The total monthly PITI payment is $3,613.

    Option #3. The figures on the third column, is a FHA 10% down loan with monthly mortgage insurance. The rate on a FHA 30 year fixed is lower at 3.875%, but there is also monthly FHA mortgage insurance of $366. There is also a FHA funding fee of 1.75% due on all FHA loans, this fee of $9,450 was added to the loan amount in this example. The total FHA monthly PITI payment is $3,628.

    As you can below, option #1 with the conventional loan and No PMI will help you obtain the lowest monthly payment and save you the most money. It will save you $271 a month over the conventional loan with PMI, and saves $287 over the FHA loan.

    Over the next 10 years the conventional loan with no PMI will save $17,199 over the conventional loan with PMI, and $36,516 over the FHA loan.

    In Summary. Instead of taking the conventional or FHA loan option and paying the mortgage insurance each month, the conventional jumbo loan with No PMI will give the buyer the lowest monthly payment.

    Remember too, with the new FHA mortgage insurance rules, the FHA buyer has to pay the FHA mortgage insurance for a minimum of 11 years, click HERE for a summary of the current FHA mortgage insurance rules.

    Frequently Asked Questions for the 10% Down Jumbo Program With No PMI

    Here are the most frequently asked questions that buyers and real estate agents have in regards to the conventional jumbo 10% down No PMI loan option.

    1. What is the maximum loan amount with 10% down?

    The maximum conventional jumbo loan limit with 10% down and No PMI for buyers in San Diego is $546k, so they can purchase a home up to $600k. Buyers in LA and SF can finance a loan up to $625k, which means they can purchase a home up to $695k with only 10% down. Each county in California has it’s own jumbo loan limit, you can check your county loan limit HERE.

    2. Can the buyer receive the 10% down payment as a gift?

    Only 5% of the funds have to come from the buyer, the other 5% down can be gifted.

    3. What credit score is required to qualify for this program?

    We only require a 660 credit score to qualify for this loan program. Please note, the lower the credit scores the higher the interest rate will be.

    4. How do you Eliminate the Mortgage Insurance?

    It’s very simple. All you have to do is take a slightly higher interest rate, from 4.375% to 4.625% (see example above), and we use a lender credit with the higher interest rate to eliminate the monthly mortgage insurance from your payment. So now the mortgage insurance is paid by the lender.

    5.  Can you get 10% down with No PMI on 2nd homes or Investment Properties?

    No, the 10% down is for Primary Residences only. On 2nd homes, you only have to put down 15% to obtain the No PMI payment option. On investment properties this program is not available, as you have to put down 20%, which eliminates the Mortgage insurance anyway.

    6. Are co-signers allowed on this program?

    Yes co-signers are allowed on this program, the co-signer does NOT have to reside in the home.

    7. Is this program for first time buyers only?

    No, this program is available for all buyers.

    8. Are there income limits for this program?

    No, any buyer can qualify for this program regardless of income.

    9. Do condos qualify for this program?

    Yes, you can also purchase a condo using this program with only 5% down and get the No PMI option.

    10. What if I put down 15%, do I get a lower rate?

    Yes, if you put down 15% as a down payment, you will get a lower interest rate. Essentially the larger the down payment, the lower the interest rate you will get with all conventional loan programs.

    11. Can I finance a higher loan amount with 10% down?

    Yes, we have a loan option where buyers can finance a loan up to $3 million with only 10% down and No PMI, so now buyers only have to put down 10% instead of the usual 20%, to eliminate the PMI on a jumbo loan to $3 million. Ask me for more details on this loan option.

    REFINANCE TIP for Homeowners

    These programs with No PMI also work the same for refinances, as homeowners with limited equity can now refinance up to 90% or 95% of their home value with No PMI.

    For example, many homeowners who bought a home over the past 12-24 months using a FHA loan or a loan with monthly PMI, have probably gained at least 10-15% equity again due to appreciation.  So this loan program is a great option to help them refinance out of their current loan with mortgage insurance, and into a NO PMI option, and save some extra money and get a lower monthly payment.

    We have been able to help many of our clients who bought a home over the past 2 years with a loan with mortgage insurance, refinance into a loan with No monthly mortgage insurance and save on average $200-$300 a month, or convert their loan into a 20 or 25 year fixed using the same monthly payment.

    If you have any questions about how to get approved for this program, please feel free to contact me at 858-442-2686 or just reply to this message.

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    Forget the Toaster, Married-to-be Couples Setting up Down Payment Gift Accounts to Purchase a Home

    September 22nd, 2014

    Instead of receiving wedding gifts that never see the light of day, married-to-be couples are setting up down payment gift accounts, so they can receive wedding gifts towards a down payment to purchase a home. Many a study reveals that the main reason people continue renting and can’t buy a home, is because they don’t have any down payment funds. Here are some tips to help couples set up a down payment fund, so they can get the wedding gift of their dreams, a beautiful new home!

    The #1 reason renters can’t buy a home

    As this survey below by Yahoo Real Estate confirms, the #1 reason renters can’t buy a home is because they don’t have money for a down payment, in fact over 53% of people in this study confirmed this.

    Therefore a good idea in today’s market place, is to teach buyers creative ways how to get access to funds to purchase a home.

    I am sure many soon-to-be married couples would rather purchase a home than get many of the gifts they end up receiving :). People just don’t know this is an option available to them.

    Helping married-to-be couples set up a down payment fund

    Did you know the FHA allows couples to set up a “Bridal Registry Account” if they are planning on getting married soon and want to accumulate funds for their down payment to buy a home? This is a great way for “married-to-be” couples to come up with their down payment to buy a home.

    Just like registering at a specialty or department store, the FHA Bridal Registry program allows you to register a down payment account. Then your friends and family are able to make gift payments into an interest bearing account on your behalf.

    It’s a win win! Not only can your gifts earn interest, but they can be used as a down payment towards an FHA Loan.

    Here’s how it works in 3 simple steps:

    *You will open a savings account at your bank prior to the wedding.

    *Friends and family will be given the banking information where the gifts will be deposited.

    *All of the gift funds can go towards the FHA required 3.5% down payment.

    *There is no requirement that you be married prior to closing on your new home.

    Another huge advantage is that there are no gift letters or other documentation required other than proof of your savings account named “bridal registry account.” It’s that simple!

    Crowd-funding sites for down payment funds

    More recently, niche crowd-funding sites have been popping up. A number of them focus on helping people raise cash for real estate-related pursuits, including cobbling together enough cash for a down payment.

    Feather the Nest, for example, lets users create pages where they can use text, photos and video to describe what real estate aspirations they want contributors to help them fund. Users then share their campaigns through email and their social media accounts.

    Feather the Nest isn’t the only company trying to help people crowd-fund down payments. Hatch My House also targets couples who would prefer down payment assistance over cutlery and candlesticks.

    Additional help for buyers with closing costs

    If buyers need additional funds to help pay for closing costs, we can offer them a lender credit that can pay all of their closing costs.

    Buyers and agents have to get creative these days to get an offer accepted. For example, a purchase offer asking for seller credits to pay for a buyers closing costs will usually always place behind a buyers offer that does NOT ask for any seller credits! Most people assume because a buyer does not have funds for closing costs, just ask the seller to cover them.

    So to make a buyers offer more competitive, we can pay for ALL the buyers closing costs with a lender credit!

    How does this work? It’s easy, instead of taking let’s say a 4.25% 30 year fixed rate on a loan, the buyer will take a slightly higher rate of 4.5% instead, and with this higher rate there is now a lender credit of roughly 2.5% available that can be used to pay ALL the buyers closing costs.

    Not only is this a good negotiating tactic, but of course it saves the buyer a lot of money too if they do not have the funds to pay for their own closing costs! I present this option to all our buyers so they know it is available!

    What is a “Gift of Equity” purchase?

    Another purchase option available to buyers that many people don’t know about, is a “Gift of Equity Purchase”. We have been doing several of these transactions recently, and they are a great idea in this market with the shortage of properties for sale. Here is how it works.

    Let’s say a family member wants to sell a property to another family member. The parents (sellers) can gift some of the equity as a down payment to their kids (buyers).

    For example, Conventional financing requires a gift of equity of 20% to qualify for this program, so now buyers can qualify for the best loan terms and rates, as the 20% gift of equity counts as a “20% down payment” towards their purchase.

    If you have any questions about any of this information, or you would like to get approved for financing, please feel free to contact me directly at 858-442-2686.

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    YOURgage – Choose Your Own Fixed Rate Mortgage Term

    August 30th, 2014

    The conventional “YOURgage Program” is a terrific option for homeowners and new home buyers, as it allows a borrower to choose their own term on a conventional fixed-rate mortgage on a refinance or a home purchase. Until recently, a borrower could only choose a 15, 20 or 30-year fixed term. Now a borrower can choose any term they want between 8 and 30 years. If you have been paying on your 30 year mortgage for 6 years and would like to refinance the remaining 24 years, or you have a goal of retiring in 18 years and would like to be mortgage free for retirement, you can now choose your own term on a fixed-rate mortgage.

    Choose Your Own Fixed Mortgage Term

    Fannie Mae’s new conventional “YOURgage Program” is a great option for new buyers and current homeowners. And the lower the term of the loan, the better the rate.

    For example, if you have already been paying on your mortgage for 6 years, and you do not to start paying interest all over again on a 30 year loan, you can now choose a 24-year mortgage so you stay on track to pay off your mortgage early.

    Having the ability to pick your own loan term is also a great option for a borrower who wants to be mortgage free for retirement, and knows the age they want to retire at.

    For example, let’s say you have a 30 year mortgage and you have been paying on the loan for 4 years, which leaves 26 years left. But you have a goal of retiring in 18 years. You can now refinance your loan into a 18 year fixed rate mortgage term, so you can be on track to be mortgage free for retirement in 18 years.

    Borrowers Switching to Shorter Term Mortgages

    As you can see below in the chart, many homeowners with 30 year mortgages are switching to shorter terms mortgages, as rates on shorter term loans are still very low right now.

    With conventional financing, the shorter the term of the loan, the lower the rate.

    In fact, over the past couple of quarters alone, 46% of refinancing households ditched their existing 30-year fixed rate loan in favor of a shorter-termed 15-year or 20-year loan. It’s the quickest exodus rate from the 30-year fixed rate mortgage in history.

    At today’s rates, homeowners with a 15-year loan term will pay 64% less mortgage interest than with a comparable 30-year loan, as a 15-year mortgage requires just $28,000 of mortgage interest per $100,000 borrowed. Whereas 30-year loans pay $81,000 per hundred-thousand dollars borrowed.

    As the payment on a 15 year mortgage is may be too expensive for some borrowers to pay each month, a 20 year or 25 year fixed is also a great way to save interest over the term of a loan, as a 25 and 20 year payment is more affordable. We can even help homeowners refinance into a 27 or 23 year fixed.

    If you like to see if a shorter term mortgage would be a good fit for you, just let me know and I can run the numbers for you.

    If you have any questions about any of the information above, or you would like to get approved for financing or need a free rate quote, please feel free to contact me directly at 858-442-2686.

    P.S. Please join my Facebook page for faster updates on any new mortgage programs that become available, as well as other industry news.

     

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    Fannie Mae Increases Waiting Period for Buyers With Short Sale From 2 Years to 4 Years

    August 22nd, 2014

    Fannie Mae changed their short sale rules for conventional financing on August 16th. Until recently, buyers with a short sale and a 20% down payment were allowed to repurchase a home with conventional financing after only 2 years, but now Fannie Mae increased this to 4 years regardless of the size of the down payment.

    Why Did Fannie Mae Make These Changes?

    It is interesting that Fannie Mae just announced this new short sale rule last week, especially now that the housing market is continuing to heal and grow. I would think a better idea would be for Fannie Mae to reduce their current conventional foreclosure timelines, which require a buyer to wait 7 before they can get a loan. Wouldn’t reducing this to say 5 years help many more buyers get back into the housing market?

    There has been a lot of chatter in the industry recently that conventional rules are still too strict for buyers, and this new announcement certainly adds to that argument.

    Current Timelines When a Buyer can Repurchase After a Short Sale, Foreclosure or BK

    Buyers today essentially have 3 options when it comes to obtaining financing. Did you know more than 9 out of 10 mortgages are either funded by Fannie Mae/Freddie Mac, the FHA or VA!

    So if a buyer is looking to purchase and needs financing, it is more than likely they will be using one of these 3 financing options. So here are the timelines buyers must know when looking to repurchase a home after either a short sale, foreclosure or bankruptcy.

    1. When Can I Repurchase Again After a Foreclosure?

    Here are the time lines for when a buyer can repurchase again after a Foreclosure and they are trying to obtain either Conventional, FHA or VA financing.

    Conventional. It is 7 years before a buyer can repurchase again using FHA financing.

    FHA. It is 3 years before a buyer can repurchase again using FHA financing. Or, see below for how a FHA buyer can qualify again after just 1 year if they experienced an economic event.

    VA. It is only 2 years before a buyer can repurchase again using VA financing.

    2. When Can I Repurchase Again After a Short sale?

    Here are the time lines for when a buyer can repurchase again after a Short Sale and they are trying to obtain either Conventional, FHA or VA financing.

    FHA. It is 3 years before a buyer can repurchase again using FHA financing.

    *FHA TIP: The FHA has a loophole that not many people know about, if the FHA buyer did not have any late payments before their short sale, they are allowed to automatically qualify again for FHA financing.

    New FHA Short Sale Rule for 2014. The FHA announced in late 2013 they have reduced the time line that buyers must wait after a bankruptcy, foreclosure or short sale before qualifying for an FHA-backed mortgage, if a buyer experienced an “economic event” whereby their household income fell by 20% or more for a period of at least six months.

    The period had previously been two years following a bankruptcy, and three years following a foreclosure or short sale. The agency has now reduced the waiting period to ONE YEAR. 

    For additional information on how to qualify under this new rule, I wrote an article recently on this subject for the San Diego Union Tribune newspaper, see HERE.

    VA. It is only 2 years before a buyer can repurchase again using VA financing.

    Conventional. As of August 16th, it is 4 years before a buyer can repurchase again using Conventional financing. So no matter what size the down payment is, either 40%, 20% or 5% down, a buyer has to wait 4 years now after a short sale before they can get conventional financing.

    3. When Can I Repurchase Again After Bankruptcy?

    Here are the time lines for when a buyer can purchase again after a Bankruptcy and they are trying to obtain either Conventional, FHA or VA financing.

    Conventional. For a chapter 7 Bankruptcy it is 4 years and 2 years for a chapter 13 bankruptcy, before a buyer can repurchase again using Conventional financing.

    FHA. For a chapter 7 Bankruptcy it is 2 years and 1 year for a chapter 13, before a buyer can repurchase again using FHA financing. Or, see above for how a buyer can qualify again after just 1 year if they experienced an economic event.

    VA. For a chapter 7 Bankruptcy it is 2 years, and 1 year for a chapter 13 bankruptcy, before a buyer can repurchase again using VA financing.

    Helping Buyers Rebuild Their Credit

    It is also very important that buyers have started to re-establish their credit again since their hardship. For example, even though the required timeline of say 2 or 3 years may have passed, it is also important that buyers have the required credit scores to qualify again for financing. For example, the FHA and VA only require a 580 credit score to repurchase a home again. 

    The first step is for a buyer to get a copy of their credit report to verify if their financial hardship or discharge is reporting correctly and to also see what their scores are.

    Then the next step is for buyers to start rebuilding credit scores. You can check out my “Credit Education and Improvement” section on my website (see HERE ), which is devoted to helping buyers and consumers understand how credit works and how to improve their scores, so they are able to score the best rates and financing terms.

    Tips for Buyers Looking to Purchase Again

    There are many buyers who suffered a financial hardship in the past who are already back in the market again to purchase a home. As the VA only requires 2 years from a short sale or a foreclosure, and the FHA only 1 year in some cases, there are a lot more buyers who are eligible to repurchase again but probably just don’t know they can.

    A lot of buyers I talk to who suffered a financial hardship in the past, are genuinely surprised when they realize that the FHA or VA for example allows them to purchase again after just 2-3 years!

    Tip for real estate agents, a good idea is to check the dates with any clients, friends or family you helped short sale in the past, or anyone who had a foreclosure, and verify how much time has elapsed since their hardship, so now you can let them know when they can repurchase again using these time lines above.

    Make sure your buyers know too how important it is that they rebuild their credit, and that they should contact you if they need credit tips on how to rebuild their credit.

    I also wrote a piece for the San Diego Union Tribune recently discussing these topics above, which explain the “Guidelines for repurchasing a home after a Financial Hardship'” you can check it out HERE.

    If you have any questions about any of these repurchase time lines above, or you would like to get approved for financing, please do not hesitate to contact me directly at 858-442-2686.

     

     

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    How To Cancel FHA Mortgage Insurance-If you Bought a Home Prior to June 2013

    May 1st, 2014

    A question that all FHA buyers ask is “How and when can I cancel the FHA mortgage insurance from my monthly payment?” This information below is for FHA homeowners and buyers who bought their home prior to June 2013. Did you know that a FHA buyer who only puts down the minimum down payment of 3.5%, AND only makes their minimum monthly mortgage payment each month, will pay monthly Mortgage Insurance Premiums or “MIP” for up to 10 years? As many buyers today have to take FHA financing to purchase a home, it is very important that they know how and when they can eliminate the FHA MIP.

    How to cancel FHA Mortgage Insurance? – If you Bought Your Home Prior to June 2013!

    For example, the schedule for getting rid of FHA mortgage insurance changes by the loan term.

    On a 30-year loan term: Monthly Monthly Insurance “MIP” is automatically canceled once the loan reaches 78% loan-to-value (LTV) AND has been paid for a minimum of 60 months. In other words, if you have a 30-year fixed rate FHA mortgage, you must pay MIP for at least 5 years before it can go away — regardless of your loan balance.

    *If you take a 30 year FHA mortgage, and you only put down the minimum FHA down payment of 3.5%, you could potentially pay MIP for roughly 10 years to reach 78% loan to value IF you only make the minimum monthly mortgage payment due each month!

    On a 15-year loan term : Monthly MIP is automatically canceled once the loan reaches 78% loan-to-value. There is NO requirement that MIP has to be paid for at least 60 months. By comparison, if you have a 15-year fixed-rate FHA mortgage, your MIP is removed as soon as your LTV is low enough. No action is needed on your part — the FHA handles MIP removal automatically.

     *TIP. Did you know there is NO FHA monthly MIP on a 15 year term as long as the buyer finances less than or equal to 78% loan to value.

    1. Can you use an appraisal to eliminate FHA MIP?

    No, the FHA does NOT allow homeowners to use a new appraisal to determine whether your loan is at 78% LTV (loan-to-value). The 78% LTV is based on the lesser of your purchase price, or its original appraised value when you purchased the home.

    2. Does the interest rate make a difference to the MIP?

    Yes, the interest rate does make a difference to how long the MIP will stay on the loan. Here is an example of a purchase scenario below that has a sales price/appraised value of $250,000 on a loan with a 5% interest rate, and is based on the buyer making regular monthly payments (no additional principal prepayment). *If the interest rate is 1% lower than 5%, subtract one year. If the interest is 1% higher than 5%, add one year.

    Down Payment/ Loan/Term/ Years MI to cancel

    5%,   $237,500, 30 yr = 10 yrs to eliminate MI
    10%, $225,000, 30 yr =  8 yrs to eliminate MI
    15%, $212,500, 30 yr =  5 yrs to eliminate MI

    3. Does a bigger down payment reduce monthly MIP?

    Yes a bigger down payment does reduce the monthly MIP payment a little. For example, if you put down 5% or more on  a FHA purchase the monthly MIP factor is (1.20%) of the loan amount, whereas if you put down 3.5% the monthly MIP factor is 1.25%. *Please note that on jumbo loans over $625k, FHA MIP is increasing to 1.5% on June 11th 2012.

     An alternative to FHA financing for buyers

    FHA MIP is getting very expensive these days and there are lots of buyers who are stalling on committing to purchasing a home because of it! For example, on a $400k loan a new buyer will pay $5k a year, or $416 a month towards FHA MIP ($400k x .0125% = $416). Therefore it is important that buyers explore all their loan options if they only have a low down payment available for purchasing a home. Otherwise as mentioned above, they could be stuck paying FHA monthly MIP on a mortgage for 10 years!

    A great alternative to FHA is the “Conventional 5% down NO monthly mortgage insurance loan option” instead! Check out the savings on this program below compared to FHA financing.

    Purchase with a 5% down Conventional loan with NO Monthly MI

    Here is an example of a Conventional 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 buyers monthly PITI payment is $2,105.

    On the right hand side is the FHA 3.5% down payment option. The FHA monthly PITI payment (including FHA MIP) is $2,426. The conventional 5% down loan saves the buyer $321 a month and $32,117 over the next 10 years vs the FHA purchase option. *Fyi a buyer can borrow up to $417k on the 5% down No MI program. 

    Conventional NO monthly MI available on jumbos now too

    Did you know that Conventional financing with the NO monthly MI option is also available on jumbo loans now too? For example, jumbo buyers in San Diego now only have to put down 10% and can finance up to the Conventional jumbo loan limit of $546k, ($625k in Orange County and LA) to eliminate the monthly MI.

    Compare this to FHA jumbo financing where expensive MI must be paid each month. On a similar loan using FHA financing, a buyers payment will be an extra $400 a month to cover the expensive FHA MIP. See HERE for information on how to qualify for the Conventional No MI loan program, so you know how it works and who can qualify.

    Helping buyers choose the right loan program

    FHA financing is a great program for new buyers, and especially when an FHA loan is their only option. But it is very important that buyers today understand how long they may be paying the FHA MI for, as paying FHA MI for up to 10 years can get very expensive! Unfortunately I believe too many buyers today are being put into FHA loans because they did not know other better loan options were available to them.

    Overall if a buyer can qualify for both FHA and Conventional, I believe the conventional 5% down No monthly MI program is a better loan option for buyers than FHA, as this loan program will also help buyers obtain home ownership with a low down payment, and they also do not have to pay expensive mortgage insurance every month. So now buyers can maximize their savings both short term and long term by putting the additional monthly savings towards other investments.

    If you have any questions about how to eliminate FHA mortgage insurance, or how to qualify for the conventional 5% down NO MI program, please feel free to contact me directly at 858-200-9602. I look forward to chatting soon.

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    12 Essential Homebuyer Tips to Follow

    April 23rd, 2014

    Market Leader recently surveyed 400 real estate agents and asked for their most important tips to share with homebuyers. Here are 12 of the most important tips that agents recommend all buyers should follow, including “The 6 Most Essential Homebuyer Tips” below in an infographic. Let me know if you have any questions about any of these tips below.

    1. Get a Home Inspection

    91.4 percent of agents say this is a very important tip.

    The tip: Get a home inspection to evaluate the safety and overall condition of your new home, even if it appears flawless.

    2. Get Pre-approved for a Loan

    89.0 percent of agents say this is a very important tip.

    The tip: Before you start house hunting, get pre-approved for a mortgage loan.

    3. Communicate Through Your Agent

    89.0 percent of agents say this is a very important tip.

    The tip: When you want to ask or tell the seller something, always go through your real estate agent.

    4. Put the Deal Into Writing

    87.5 percent of agents say this is a very important tip.

    The tip: Get the seller to put every component of the deal and any verbal agreement into writing.

    5. Include Contingencies With Offer

    83.0 percent of agents say this is a very important tip.

    The tip: Include important contingencies, such as financing and property inspections, with your offer.

    6. Develop a Wish List

    82.4 percent of agents say this is a very important tip.

    The tip: Come up with a realistic wish list. Find out what you can afford in terms of house size, neighborhood and amenities.

    7. Know Your Local Market

    75.6 percent of agents say this is a very important tip.

    The tip: Know as much about the local market as you can. Use your agent’s CMA to learn about the selling price of comparable homes and the strength of the local real estate market.

    8. Prioritize!

    68.5 percent of agents say this is a very important tip.

    The tip: Decide what’s most important to you before the negotiation, so you know what parts of your offer you’re most comfortable giving up.

    9. Keep Other Houses in Mind

    43.9 percent of agents say this is a very important tip.

    The tip: When you begin negotiating on a specific property, know of other houses you’d be interested in buying. You don’t want to be so desperate to buy a certain house that you give in to whatever the seller wants.

    10. Be Smart With Your Contingencies

    40.6 percent of agents say this is a very important tip.

    The tip: Avoid including unnecessary contingencies in your offer. Doing so will make it less attractive.

    11. Keep Negotiations Short

    39.8 percent of agents say this is a very important tip.

    The tip: Avoid long, drawn-out negotiations, which can negatively affect the chances of your offer being accepted.

    12. Scope out Neighborhoods, Neighbors

    31.9 percent of agents say this is a very important tip.

    The tip: Talk to neighbors to get the inside scoop on what it’s like to live in the neighborhoods of homes you are interested in. While doing so, gauge if you would like to live next to these people for the foreseeable future.

    13. Connect With the Sellers

    24.9 percent of agents say this is a very important tip.

    The tip: Establish a connection with the sellers. You may be able to get a better deal if the sellers see you as a person, not just an opportunity. Writing a personal letter to the seller to include along with your offer is a good idea in this market.

     

     

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    Why You Need a Real Estate Agent

    March 25th, 2014

    When looking to purchase a home, it is important to work with a real estate agent to help you understand all the data that is available out there, so you can make an informed decision. Here are some of the reasons why it is a good idea to hire a real estate agent to help you purchase a home!

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    FHA Financing – How to Get Approved for a FHA Loan

    March 10th, 2014

    FHA financing is a terrific loan program for home buyers, with 1 in 5 buyers currently using FHA to finance a home. With it’s low down payment requirements, easier qualification rules for buyers with less than perfect credit, and flexible loan programs to allow co-signers etc, FHA financing plays a huge role in the housing market by helping many home buyers finance a home that would not be able to otherwise. This list of FHA frequently asked questions and FHA tips, will help you better understand the in-and-outs of how the FHA mortgage program works.

    FHA Loan Frequently Asked Questions

    Here are some tips for helping you better understand the FHA financing program, as well as some of the most frequently asked questions that buyers and agents have about FHA.

    What is an FHA loan?

    FHA stands for Federal Housing Administration. The FHA was formed in 1934 and was moved to the U.S. Department of Housing and Urban Development (HUD) in 1965. FHA is the world’s largest mortgage insurer. The FHA does not “make” the loan – it insures the loan for the lender.

    What is FHA mortgage insurance and why do buyers have to pay it?

    FHA mortgage insurance premiums (MIP) are premiums you’ll pay at closing, and in the monthly mortgage payment, to insure your lender’s loan against default. The amount of FHA MIP paid is linked to the size of your down payment, and the length of your loan.

    Homeowners making a down payment of 10% or more and financing via a 15-year mortgage pay the least amount of FHA MIP. Homeowners making the minimum down payment of 3.5% and using a 30-year loan, will pay the most FHA MIP. Please note, if you put down less than 10%, you will pay FHA MIP for the life of the loan, see HERE for more details.

    How Do I Cancel FHA Mortgage Insurance?

    If you put down less than 10%, you will pay FHA MIP for the life of the loan, so the only way to cancel it would be to refinance into a conventional loan.

    If you put down more than 10%, FHA MIP will cancel after a certain amount of years. See HERE for more details when the FHA mortgage insurance will cancel.

    What down payment is required for an FHA loan?

    Most FHA loans only require a 3.5% down payment. The 3.5% is calculated against the your home’s purchase price or its appraised value, whichever is lower.

    For example, if you buy a home for $300,000 and the home appraises for $310,000, your 3.5% down payment will be based on the $300,000 figure, regardless of what the home “is worth”.

    What is the Maximum Loan I can Qualify For?

    FHA offers financing based on county loan limits. For example, FHA buyers can get 3.5% down payment financing up to a loan of $546,250 in San Diego (reduced from $697,000 in 2013), $625,000 in Los Angeles and Orange County (reduced from $729,000 in 2013), and $355,350 in Riverside and San Bernardino (reduced from $417k in 2013). See HERE for the maximum loan limits for your county.

    *Please note that interest rates are better for loans under $417k which are known as conforming loans, and rates are higher for loans >$417k, as these are considered FHA jumbo loans.

    What is the FHA waiting period after a foreclosure, bankruptcy or short sale?

    Short Sale: It is 3 years before a buyer can repurchase again using FHA financing. *TIP: The FHA has a loophole that not many people know about, if the FHA buyer did not have any late payments before their short sale, they are allowed to automatically qualify again for FHA financing.

    Foreclosure: It is 3 years before a buyer can repurchase again using FHA financing.

    Bankruptcy: For a chapter 7 Bankruptcy it is 2 years and 1 year for a chapter 13, before a buyer can repurchase again using FHA financing.

    FHA Reduces Wait Times for Buyers Who Had Foreclosure or Short Sale

    The FHA announced a few months ago, they have reduced the time buyers must wait after a bankruptcy, foreclosure or short sale before qualifying for an FHA-backed mortgage, if the buyer experienced an “economic event” whereby their household income fell by 20% or more for a period of at least six months.

    The period had previously been two years following a bankruptcy, and three years following a foreclosure or short sale. The agency has now reduced the waiting period to ONE YEAR. 

    For additional information on how to qualify under this new rule, I wrote an article recently on this subject for the San Diego Union Tribune newspaper, see HERE

    What Credit Score is Required to qualify for a FHA loan?

    Most lenders will require a credit score of 620 to qualify for a FHA loan and 3.5% down. I have 2 lenders that only require a 580 score, and we can still offer a loan that only requires a 3.5% down payment.

    Did you know a FHA buyer with a credit score below 580 is also allowed to qualify for a FHA loan, but they need to put down 10%.

    Can I use a cash down payment gift for an FHA loan?

    Yes, FHA mortgage guidelines allow for cash gifts of down payment. Down payment gifts may come from a relative, an employer, an FHA-approved charitable organization, or a government housing grant program. Cash gifts may not come from friends, co-workers, or a fiancé/fiancée. All cash down payment gifts must be accompanied by an FHA Gift letter.

    Are FHA Loans for first-time home buyers only?

    No, FHA loans are not restricted to first-time home buyers. Anybody can use an FHA mortgage. Whether you’ve owned a home before does not affect your FHA mortgage eligibility.

    Can I Buy an Investment Property With FHA?

    No, you can only purchase a primary residence using FHA financing, no second or vacation homes either.

    Tips for FHA Buyers Purchasing Condos!

    FHA buyers have to be careful when looking to buy a condo, as the complex has to be FHA approved. Here are 4 tips to make sure you are buying a condo that will qualify for FHA financing.

    1. Is the complex currently FHA approved? Check HERE
    2. What are the owner occupied ratios? FHA requires 51% Owner Occupied.
    3. Are there >15% of the units currently 60 days delinquent on their HOA dues? (FHA requires <15%)
    4. Is there any current litigation in the complex? (None allowed).

    TIP: Did you know PUD’s do NOT have to be FHA approved for buyers to obtain financing? I have seen this a lot recently whereby a complex is Not showing up FHA approved and the agent and FHA buyer give up looking in the complex because they assume all the properties are “Condos”. But upon further research it’s discovered that many of these properties are actually detached condos built within a condo project and are classified as PUDs and NOT condos, and therefore do not need to be FHA approved for financing.

    Tips for Buying Flipped Homes With FHA Financing

    As investors continue to scoop up properties and flip them to FHA buyers, here are 5 FHA rules to follow if a property is resold within 90 days and there is >20% profit to the seller.

    1. A 2nd Appraisal is required if >20% profit within 90 days, The FHA is NOT allowed to pay for it.
    2. Home inspection is required on all flips (all repairs called out by appraiser must be fixed by seller prior to funding).
    3. Health & Safety repairs (Any noted on inspection report must be repaired by funding).
    4. All transactions must be arms-length (NO identity of interest between parties)
    5. A minimum 12-month chain of title required (can’t be flipped twice in 12 months).

    See HERE for additional information that buyers should know when buying flips with FHA.

    Down Payment Tip: Create a Bridal Registry Account

    Did you know the FHA allows couples to set up a “Bridal Registry Account” if they are planning on getting married soon and want to accumulate funds for their down payment to buy a home? This is a great way for “married to be” couples to come up with their down payment to buy a home. Here’s how it works—3 simple steps:

    1. Couple opens a savings account prior to the wedding (label it “Bridal Registry”).
    2. Gifts are deposited.
    3. All of the 3.5% down payment can come from these gift funds.

    No gift letters. No paper trails. Just a simple savings account labeled “Bridal Registry account” and buyers are on their way to having the wedding present of their dreams.

    Buyers Can Purchase a Home with a FHA 203(k) mortgage?

    The FHA 203(k) mortgage is similar to a construction loan. With the 203k, you can buy a home and finance its major repairs into the purchase price. The 203k allows for almost anything — roof replacement, garage addition, new flooring and finishes, and more.

    Use a Co-Signer to Qualify to Purchase a Home

    If a buyer needs help qualifying to purchase a home, the FHA allows a co-signer to help them qualify. The co-signer does NOT have to live in the home either. Also, an unmarried couple can also purchase a home together using FHA financing too.

    FHA Buyers Can Purchase a 3-4 Unit Property

    Did you know the FHA allows buyers to purchase a 3-4 unit home with FHA financing and they only have to put down 3.5% to qualify. Buyers can live in one unit and rent out the other 3, they can also use the rental income from the other 3 units to qualify for a loan. This is a great way for buyers to start out as a real estate investor.

    The FHA Good Neighbor Next Door Program

    The FHA Good Neighbor Next Door program (GNND) is a special FHA program for teachers, law enforcement officers, firefighters and emergency medical technicians. The Good Neighbor Next Door program allows eligible buyers to purchase HUD homes at a 50% discount from the list price, and with a down payment of just $100. You must only occupy the home as your principal residence for three years. Let me know if you want further information on this.

    I hope you found this list of FHA questions and FHA tips useful. If you have any questions about FHA or getting approved for financing, please feel free to contact me directly at 858-442-2686. 

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