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Archive for the ‘Buying a Home’ Category

You Can’t Time the Bottom. You Can Pick a Great House

Thats a subtitle of a recent article in Money Magazine (June 2008). For quite some time I have been yelling from the virtual rooftops that now is THE time to buy a home in Charlotte NC! Yet there are several people out there that still want to wait for the “bottom to hit” so that they can get the “best deal” they can get.

Along comes this article from Money and guess what… they are saying the exact same thing!

The article says that you can not accurately predict when the “bottom” will hit and prices will be at the lowest possible point. As a matter of fact, this article says to resist the urge even as it is possible that the home you buy today could actually be worth a little less next year. This part doesn’t necessarily apply in Charlotte as we still remain the only major market in the US to increase in values!

The real estate market offers the best choice in homes we have seen in decades and with mortgage rates still low, now is the time to make your move. Do your research, work with a Realtor and make your offers accordingly. But don’t sit around and wait. If you are thinking of buying a home in Charlotte, now is the time. Make your move and you could be enjoying the summer in your new Charlotte home!

New Risk Layering Added to FHA Mortgages

Effective July 14, 2008 FHA mortgage loans will charge new mortgage insurance premiums based on a combination of credit scores and percentage down. Currently all FHA mortgage loans enjoy the same premiums.

Right now, an FHA mortgage loan requires 1.5% of the loan amount to be paid up front for mortgage insurance, plus an annual mortgage insurance premium 0.50%, paid monthly. Using a $100,000 loan amount, the upfront mortgage insurance premium would be $1,500 and the monthly insurance premium would be $41.67. (0.50% annual = $500 / 12 monthly payments = $41.67 a month.)

Lets see how this new Risk Layering will impact FHA mortgages after July 14.

Most FHA purchases are done using the minimum 3% down. So with the new risk layering, someone with a credit score of 640 would see an upfront fee of 1.5% and an annual rate of 0.55%. Not bad! Realistically you are talking a difference of roughly $4 a month.

However, someone with a credit score of 550 would see an upfront premium of 2.25% and an annual premium of 0.55%. On a $100,000 mortgage loan, this equates to an upfront premium of $2,250 and $45.83 a month for the annual premium.

The good news is that the upfront premium can be financed back into the loan amount, so the additional $750 won’t be required in cash! And this small amount won’t make any significant monthly payment changes that will hurt your wallet!

This is a small change and not one to be too upset about. Yes, its an increase in premiums, but with the increase of foreclosures across the country, HUD has to ensure that they can continue to offer these great FHA mortgage loans!

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Joe and Susan wanted to buy a home in Charlotte. They spoke with a loan officer and began the credit application. Joe had been on his job for just over a year, and Susan almost a year. 

John went on to explain that he had worked for Widgets Inc for 6 years, but got caught up in downsizing. After losing that job, went to work for Wares LTD and has been there for about 14 months. Susan worked for Dr. Bones for 3 years, but when he retired, she went to work for the Miracle Hospital and has been there for 10 months. Their loan application was signed and a closing date was set.

As the processing of the loan got under way, the lender approved the mortgage loan and all that was left was final verification of employment dates. With that done, the excited couple could soon get the keys and move in! But wait… uh oh… we have a small problem.

Duirng the final verification of employment, Widgets Inc reported back that Joe had left in August of 2006. Wares LTD’s records have Joe starting his job with them in Jan 2007. As well, Dr. Bones reported that Susan had left his employment in Feburary of 2007 while Miracle Hospital has a start date of July 2007. So on both accounts we have some serious job gaps!

The loan officer requested clarification from Joe and Susan and they explained… “Yes, we did have a few months in between those jobs. During that time Joe worked through a staffing company until a solid job came and Susan worked at a Nurses on Call company until the Hospital came through.”

When asked why they did not explain this up front, they simply did not think it mattered because they considered the jobs “part time”, held them for just a short time between their “main jobs” and neither of these “part time” jobs were anything they would include on their resume.

At this point, everything with exception of the job times was cleared and ready to go. Since lenders want to ensure that a borrower is still on the job when they close a loan, this is usually one of the last items verified. Needless to say, the brakes got put on the mortgage loan.

With further information and documentation, all employment was finally verified and Joe and Susan closed on their Charlotte home. However, they closed 5 days later than expected and those 5 days were the most frustrating days for everyone involved.

When you are applying for a mortgage loan in Charlotte (or anywhere for that matter), it is important that you disclose all jobs you have had that cover the past 24 months. Even if it is a job that does not seem to fit your resume, give the information to your loan officer. Be prepared to have dates of employment and a reasonable explanation for any job gaps.

Getting the most accurate information up front will make the entire process go much smoother and make your closing happen faster. Leaving out “unimportant” details can actually delay (or in some cases prevent) closings.

In Real Estate, Agency Matters!

When you consider buying or selling a home in Charlotte, you might contact and interview real estate agents and Realtors to help you. Before you go too far in those conversations, you need to know about a term called “agency.”

Agency begins when a home is listed for sale by a real estate agent or a Realtor. The seller of the home hires the agent’s firm to represent them in matters related to selling their home. Notice I said they hire the firm, not the agent. While they do work with the specific real estate agent, they actually hire the real estate firm. Much like hiring an attorney, when you hire an attorney the entire firm is hired to represent you.

When you consider this in its entirety, this means that a seller that has hired a firm with 100 real estate agents actually has 100 agents representing their interests. This brings along the concepts of confidentiality and allegiance. Every one of those agents are bound by law to protect and serve the interests of their clients. When you think of it that way, a seller has an entire army of agents in charge of selling their home.

From the start, all real estate agents and Realtors automatically represent the seller. If a home buyer walks in to buy a home and has not hired an agent to represent them, the agent they speak to is responsible to the seller. This means anything a buyer says can and WILL be used against them in negotiating. That is, unless the buyer has specifically hired that agent to represent them.

There are many dynamics that can occur such as exclusive buyer agency, dual agency and more. These take the agency idea into many different directions, which I will try to explain in future posts. However, one thing you should know before you say anything to a real estate agent is to be careful what you tell them (unless you have signed a contract and hired them.) Regardless of being a seller or buyer, if you provide a real estate agent with information about you can be used against you in negotiations in future dealings.

How can information from a simple interview be used against you? Lets examine this. Read the rest of this entry »

Documenting Assets is Important

Mortgage lenders have tightened up on underwriting criteria since the subprime fallout. One area that is increasingly looked at is the documentation of assets.

Asstes play a key role in qualifying for a mortgage loan. In many cases having assets may help a home buyer get approved when job time or income is less than desired. And while horrible credit is hard to overcome, tremendous assets can also help overcome some credit chellenges.

Assets can be used for paying towards money down or closing costs on your mortgage. They can also be used to provide mortgage “reserves.” Reserves of cash make a lender feel more comfortable should you run into a tight spot financially. With a reserve cushion, you would still have funds to make your mortgage payment, possibly for a few months!

Assets must be “liquid”. In other words, you must have access to get your hands on the funds. Certain retirement plans (like pension plans) do not allow any withdrawls at all, and therefore can not be considered assets. Other property owned, regardless of the amount of equity available, would not be considered assets. (Until you sell the property there is no guarantee as to how much money you would have, and taking a loan out against the property creates another liability.)

So for a mortgage application, acceptable assets would be items like savings accounts, checking accounts, money market accounts, stock shares, 401k and IRA accounts… any account that can be easily liquidated. For certain accounts such as 401k and IRA accounts, you may need to document the terms in which you can get the funds as well as the funds available.

Do you have money spread accross 4 different accounts? You may be tempted to consolidate them all to one account to make things “easier”… don’t do it! Leave the money in the accounts as they are. Any time accounts are opened, closed or money is transferred, it can become a headache having to not only document the accounts but also the source of all the deposits, withdrawls and transfers.

You may ask, why does this all matter? After all, it’s your money, right? It may well be your money, but from an underwriter’s viewpoint they need to be sure there are no unusual deposits that can not be documented. Their fear is that a borrower may have gone out and borrowed the $5,000 deposit that can not be documented creating another monthly payment not showing on credit yet.

So when you are applying for a mortgage loan in Charlotte (or anywhere!) be sure to provide every source of money you have saved. But don’t try to consolidate them into one particular account. It is easier for a processor to verify 5 accounts than to try and document 5 accounts plus 15 deposits and withdrawls.

Special Mortgage Loans for Teachers of North Carolina

I know first had how under paid, under appreciated and under supported teachers are. (My wife is a teacher in North Carolina.)  While I can’t solve all the problems in the education system, I can help North Carolina Teachers with mortgage loans!

(My wife is a N.C. teacher, but this is not my wife.)

So, this summer I want to reward North Carolina teachers with a special mortgage program. In addition to great mortgage rates and programs, I will provide reduced fees and preferred processing to my NC teacher mortgage customers!

Add this to the Teacher’s Good Neighbor Next Door program that allows teachers to buy a home for half price and you have the best possible deal for Carolina teachers! Think about that… no money down, 100% equity from day one and a low mortgage rate to boot! Aren’t you gald you are a teacher?

North Carolina teachers, you deserve the best. Let me do my part in giving back by helping you in the best way I possibly can. No matter if you are a first time home buyer or a seasoned home owner, I am here to help you buy the home of your dreams!

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What FHA Can Do With No Alternative Credit

Earlier I began a 3 part series on Alternative Credit for FHA mortgage loans. Recently HUD released a memorandum letter to all lenders describing the types of Alternative Credit they are looking for. This includes alternative tradelines from 2 different credit reference groups. But what if you can’t provide options from these two groups?

HUD does offer guideance to lenders on evaluating alternative credit when only references from the Secondary reference group, or no alternative credit at all. If there are some references, a 12 month history with no more that one 30 day late is permitted. There should also be no collection accounts (beyond medical) nor any public records (judgements, liens, ect) filed within the past 12 months. In addition, underwriters will be held to tighter debt to income ratios to enure there is enough cash flow to maintain monthly mortgage payments. Finally, at least 2 months of cash reserves (enough to make 2 mortgage payments) should be available, which must be the borrowers own funds.

While HUD sets these guidelines it is important to understand that lenders have the freedom to adapt and add to the FHA guidelines when they approve a loan. So just because a borrower just fits in the guidelines does not mean that borrower will be approved. It is the job of the loan officer to help build a case to present to the lender and underwriter showing why that borrower deserves that a risk be taken on them.

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Does the Real Estate Advice Apply for Charlotte?

Have you noticed the new section of the Charlotte Observer on Sundays? They call it Real Estate Today. It’s a special advertising section for Charlotte real estate and homes for sale. Besides the listings and ads of Charlotte properties for sale, you will find a few articles about home ownership, buying a home or investing in real estate. This week they highlighted how working with a Realtor can help make the home buying process smoother.

I applaude the efforts to provide informative articles along with the homes for sale listings. But if you look closely, you will notice that the articles were mostly written from newspapers located in other real estate markets, like Milwalkee and Detroit. This should make you pay closer attention to what is being written.

Why is that a big deal? Ever heard the saying: “All Real Estate is Local”? This means that the real estate market in Charlotte North Carolina is different than the real estate market anywhere else. And today, this statement rings very true! With majority of the country in a declining real estate market, Charlotte’s real estate market is one of the few markets still growing! So getting articles from out of state does not reflect the market we are currently in!

So why doesn’t the Observer get local experts to write the articles? I don’t know. I have not aked them yet. Maybe they don’t want to offend one Charlotte real estate office by having another one write an article. That could hurt the ad space they are looking to sell. Or maybe it is so new they just haven’t found someone to help.

Either way, as a reader you must pay attention to these small details. Otherwise, if you believe everything the media is pushing right now, you would think that every 3rd home is a foreclosure that you could buy for 1/3 the price you should pay. Sure, foreclosures in Charlotte are up; however Charlotte is in North Carolina, not California and we are not seeing the kind of loss of value that California and other markets are.

How close an estimate are you given?

When you apply for a mortgage loan, lenders are required to offer a form known as the “Good Faith Estimate.” This form is supposed to provide the borrower with a realistic estimate of the costs involved in obtaining a mortgage loan. This should provide the borrower with the knowledge up front to know if they can afford to obatin the mortgage. However, some argue that these should be used to compare and shop lenders. But could this be just a “fantasy” notion which can backfire on the borrower? Let’s consider this…

The Good Faith Estimate (commonly referred to as the GFE) is designed to be a disclosure of what to expect. But becuase so many “experts” and “talking heads” have preached and continue to instruct borrowers to compare GFE’s between lenders, many lenders have begun to go “skinny” on their estimates. As a result, many do not provide a real estimate to the consumer in ‘good faith.’ Since these lenders are afraid of the consumer using it to shop them against other lenders, many will play a kind of ”bait and switch” game just to look the best and get the application.

The problem is that when a good faith estimate does not provide realistic numbers, borrowers get hurt. Let’s say for example that you are looking to buy a home and obtain a good faith estimate from “Big Bank USA”.  On this GFE, the money you need to have ready to close on your loan is roughly $2,500. You evaluate your money and feel confident you can handle this. So you begin the home buying process and find a home. After inspections and appraisals (which you ususally pay upfront out of your pocket) you are finally about ready to close. But when you get to the attorney’s office you find out that your closing costs are actually $4,000 and you need $1,500 more to close on your loan, or lose your home! Yikes!

What happened? Well, the loan officer at “Big Bank USA” was afraid that you might shop his GFE against other lenders. So he did a “skinny” verison of an estimate. He “miscalculated” the amount of money needed to establish your escrow account. Although he knew the closing would be mid-month, he only figured 1 day of pre-paid interest instead of 15. The estimate for home owner’s insurance and taxes were “low balled.” The attorney, title insurance and other fees related to the closing were “slightly off”. All of which adds up! (Of course, he won’t actually be at the closing, but over the phone he will “confess” that these items were all “outside of his control.”)

So I wonder if using a Good Faith Estimate for “shopping” is what it should be used for? Regardless, I would suggest that you should definetly review the estimate and see if it is something you can afford. And be sure to ask some questions…

• Is this accurate?
• What on here might change?
• Which are actual lender fees and which are “outside of your control?”

Listen to the responses and you will quickly see if the one you are talking to has provided you something you can be confident in. After all, its not what someone “promises” when you apply… it’s what they deliver when you close.

How to Avoid Unsoliciated Mortgage Calls

This article will address some items that you, the general public, may not be aware of. When you apply for a mortgage loan with any lender, your information may be getting sold. And not by the lender you applied with either!

Here’s the nightmare scenario…

Let’s say you apply for a mortgage loan in Charlotte. During the application process your credit report is requested from the 3 major credit bureaus. This is normal and so far so good. But what happens next is what gets scary for you…

Since a mortgage lender has pulled your credit, your information can now be sold to other mortgage companies nationwide as a “trigger lead.” A trigger lead is a lead that is sold when someone is actively seeking credit. When the report is pulled, it “triggers” that you are looking. The credit bureaus then sell your information to multiple lenders across the country, all geared to call you and pitch their offer to you. This can become a telemarketing nightmare!

Sure, you may want to compare lenders, rates and programs. But do you want 20 unsolicited phone calls from various lenders across the country?

So how do you stop this from happening? Actually, it’s fairly easy! But you need to be proactive.

Before calling a lender, do this:

1. Visit OptOutPreScreen.com. This is the official website for all 3 credit bureaus to request them NOT to sell your information for what they call “prescreened offers.” You can opt in, opt out for 5 years and opt out permanently.
2. Visit DoNotCall.gov. This is the official National Do Not Call Registry which instructs telemarketers that they are NOT permitted to call your phone for unsolicited purposes. In other words, if you did not ask them to call, they can’t call. If they do they face possible fines up to $11,000.

The beauty of these two sites is that by Opting Out of “prescreened” offers, you should not be sold to other lenders. But if by chance it gets through, 99% of the lead sources will compare your number to the Do Not Call list and if your number is there, they “scrub” your name off the list.

There is one added benefit… your home mail box will get less junk mail as a result!