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FHA “Flipping” Rule Has Been Waived

June 9, 2008: FHA’s Assistant Secretary for Housing - Federal Housing Commissioner, Brian D. Montgomery signed the Waiver of Requirements of 24 CFR 203.37a (b)(2) which waives the requirement of the seller of a property holding a property for 90 days prior to obtaining FHA financing. This waiver is good for one year and expires June 9, 2009.

What does this mean to Charlotte?

Buying a home in Charlotte now means more options. No longer does property purchased by an investor, or foreclosed on by a lender have to be held for 90 days prior to selling in order to qualify for a Charlotte FHA mortgage loan!

Under FHA’s guidelines, once the ownership of a property changed hands, it had to be owned for 90 days before FHA would extend a loan on it. This restriction would cause many Charlotte foreclosures to have to sit for 90 days before a contract could even be executed on it!

CORRECTION: After futher review, it appears that investors will still be subject to the 90 day rule. The intent is for mortgage companies with foreclosures to have easier access to liquidate their foreclosed properties. This correction should be noted. This also opens the market up for investors that “flip” homes.

In my opinion, I would love to see this opened up to investors as well. There are many investors that will buy a home that needs some serious work, rehabilitate the home and then sell it for a quick profit. The neighborhood and community benefit from such rehabilitation, and in many cases the home buyer gets a great home at a great price! An investor has to own the home for 90 days before they could sell it to someone using FHA mortgage financing, even if the home was ready in 30 days! If this waived was extended to include investor properties, it would allow Charlotte homes for sale by an investor to be sold as soon as they are ready. Maybe HUD will review this as well.

Regardless, this waiver of foreclosed home should open up many options for home buyers using Charlotte’s FHA mortgage programs. If you are considering purchasing a home in Charlotte, now is time to take advantage!

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Charlotte Home Loan Dies over $25

“But it was only $25.00. Surely that can’t matter that much!” Unfortunately, it did.

Recently a client of mine went from being approved to buy a home in Charlotte to being denied for a Charlotte mortgage loan. It was over a $25 credit card payment. Unfortunately, the payment on one of their credit cards was not paid on time and the late payment was reported to the credit bureau. This late payment caused their credit scores to drop significantly, enough to disqualify them from the mortgage they had applied for.

The amount of your monthly payments has no bearing on the significance of the payment history. It does not matter if the monthly payment is $1,000, $100 or $1. If there is a payment due and it is not paid on time, it is reported as late. A recent late payment will hurt your credit rating and your score will suffer because of it. Most mortgage companies in Charlotte and across the country are looking very hard at credit. It is more important than ever.

If you are considering buying a home in Charlotte, make sure that every obligation you have is paid on time. If you think it is insignificant, pay it anyway. The last thing you want to experience is what this client did… it can be very heartbreaking. And delivering the news isn’t fun on my end either!

Best Negotiating Technique When Using USDA Mortgage Loans

Typically, when negotiating on a home purchase contract, many home buyers will offer a price that is lower than the listing price. The idea is to get a deal… a bargain. No matter who we are, we love to negotitate (even if we say we hate it!) However, when you are using a mortgage loan from USDA funds, your strategy may be slightly different.

USDA Mortgages allow 100% financing. As a matter of fact, USDA mortgages are about the only true no money down mortgage loans available today! In addition to 100% mortgage financing, USDA mortgages have no monthly mortgage insurance and enjoy really great rates! If you can qualify for a USDA mortgage, you should really consider it.

The one thing that is different about a USDA mortgage is that instead of monthly mortgage insurance, USDA mortgages require a funding fee. This fee acts much like mortgage insurance as the fee is used to insure potential losses from foreclosures. Currently, the up front funding fee for USDA mortgage loans is 2% of the loan. The best news is that this can be added to the mortgage itself!

Back to the negotiating strategy… When you are going back and forth on the offer to purchase on a home, you have a very unique opportunity in front of you. So many people come in asking for discounts and for the seller to pay closing costs. In more and more cases, using FHA mortgage loans, home buyers are also asking the seller to help pay for the downpayment! In so many cases, a buyer is asking the seller to drop over 10% off the price of the home to accomodate all these requests.

When offering to buy a home using the USDA program, you may want to consider a different approach. Since you won’t need down payment, focus more on asking for seller paid closing costs! USDA mortgage loans do not have a cap on how much a seller can contribute towards closing, so you can use that to your advantage.

For example, rather than asking for 5% off the home and the seller pay 3% towards closing, offer full price and ask the seller to pay 8% towards closing. Why so much? First off, this can help offset the 2% funding fee required by USDA mortgages! And since there is no cap by USDA on how much the seller can contribute, use any additional money you can to buy down your mortgage rate! An extra 1% to buy down the mortgage rate could save you thousands more than a simple price discount on the home!

Ask your mortgage lender for a comparison of rates if you wanted to buy down the mortgage this way. Between your mortgage lender and your Realtor, you will have more than enough information to insure you make the right offer and win!

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Do a search online for “mortage underwriter” and many of the images you will find are of sharp looking, well dressed individuals that seemingly do not have a care in the world. For example, here is one right off the internet:

However, this is such a false pretense! Today’s mortgage underwriters, while professional and sharp, aren’t just sitting around with nothing to do! They are busy, very busy! Most of them are stressed, with dozens of files sitting on their desks that need to be looked at TODAY! In addition to the files they have to get to TODAY, they are also dealing with processors and loan officers calling and emailing them all day long.

Imagine if you will, you have 45 loan packages sitting on your desk. Each file has forms and papers just thrown in them in no particular order and you have to sort them out and make sense of them. Now, for each of those loans, consider that during that day you will get 2 phone calls and probably 3 emails regarding EACH ONE. That means that besides having to review 45 loans (and all the forms and papers that are included in each one) you will have roughly 225 interruptions. Each one is “urgent” and will give you the impression that you must stop everything you are doing to look at this file.

Sure there are occasional files that do need immediate attention, but for the most part they don’t. But if people would just leave you alone for a few hours you might be able to know a big dent in that stack!

Now.. here is what today’s mortgage underwriter looks like: Read the rest of this entry »

Down Payment Assistance for FHA sees Increased Fee

According to The Nehemiah Program, effective June 9, 2008, the fee for processing the down payment assistance program through Nehemiah will be increasing. Here is an excerpt from their press release:

Nehemiah has built its reputation through our relentless commitment to providing affordable homeownership solutions to the public. Unfortunately, current economic conditions have had a dramatic impact on our costs of operation. Additionally, we incurred significant costs associated with our recent regulatory victory and the expenses related to educating the public and governmental officials regarding the facts about downpayment assistance. While we strive to hold costs down and have held the line for a long time, it is now necessary for us to temporarily increase our processing fee.

Currently, the new list price of this fee is $599, up $100 from before.  However, as a preferred client, Residential Mortgage Center is able to get this fee at a discount, better enabling our clients to accomplish their goals! (including Charlotte first time home buyers!)

Down payment assistance for FHA mortgage loans is a key part of helping Americans realize the dream of home ownership, especially first time home buyers. Despite the recent demise of the subprime mortgage market, buying a home without a major down payment is still possible. Some critics say this is a bad idea, citing that this is what caused the mortgage and real estate crisis we are currently in. But I disagree as the real issues stem from a combination of investors speculating that values would just continue to increase at record pace with no end in sight and the offering of mortgage loans to individuals that should not have qualified in the first place. The amount of money down had no impact on a home buyer’s ability to make their mortgage payments.

With the continued use of Down Payment Assistance programs, many first time home buyers in Charlotte can actually take advantage of a soft market and stop renting. Getting the country’s real estate market back on track should be a priority and banning DPA programs would bring that recovery to a stand still.

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Hold on to your seats! Rates are heading up!

Over the past couple weeks, we have begun to see a steady upward trend in mortgage rates. Last week, rates began to worsen and we have not seen any real relief since.

Much like the gas prices, even when good news comes, the prices seem to still climb. Mortgage rates have tended to follow the news. Good economic news such as a down turn in unemployment and an improvement in the stock market would usually push mortgage rates upward. Conversely, if unemployment rates rose and the stock market fell, rates would decline. However, over the past week, we have seen a steady increase regardless of what the news says.

This makes one wonder if we have seen the bottom of mortgage rates for a while.

Last week, you could find 30 year mortgage rates hovering around 5.875%, where today given the same pricing criteria, you might see rates more along the 6.375%. (This is not an advertisement of any rate or program; rather it is for illustrative purposes to explain the rise in mortgage rates lately.)

If you are on the fence waiting to see if rates will get better, get off the fence now! Mortgage rates in Charlotte may have seen the lowest rates we will see for some time to come.

Recently during a conversation with a local Realtor, we discussed common questions and misconceptions. One question that I had never heard was in regards to closing costs.

The Realtor’s buyer had asked the Realtor what “Settlement charges” were and if they were different than “closing costs.” As a professional in the business we throw these terms around all the time and occassonally forget that these “common” terms aren’t always common to the general public.

Closing costs are the costs to close on a mortgage loan. These costs normally consist of points, fees, attorney and title charges, escrow setup and any other charge or fee that is incurred from originating (putting together) a mortgage loan. They will vary from loan to loan, so there is no way to say what each fee should be.

Settlement charges are the charges at closing that are required to settle the transaction. These normally consist of points, fees, attorney and title charges, escrow setup and any other fee that is incurred from originating a mortgage… plus any additional inspections or charges (such as home warranties) that are incurred to complete the purchase / refinance of a home.

Generally speaking, these are the same thing. Technically speaking, the difference is that closing costs for a mortgage may not require a home inspection, radon inspection, water, pest or septic inspection. However, some of these inspections are usually highly recommended for a buyer to ensure there are not inherent problems with the home they are buying.

When you get an estimate on closing costs from your lender, pay careful attention to what is there. If there are not any inspection charges noted be prepared to account for those somewhere. A home inspection may not be required to get a mortgage loan, it is recommended that you get one and it won’t be on most estimates. So if it runs you $500 for the inspection, you must be prepared for the difference. And no, that is not a lender’s responsibility to estimate inspections… they are optional.

Hope that helps clear that up for anyone confused by the two terms.

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.