Wednesday, April 29, 2015

More Options for Low and Middle Income Americans

The Mortgage Choice Act was signed recently and its intention is to improve consumer access to mortgage credit.  The National Association of Realtors (NAR) lobbied to get this bill signed last Tuesday and it means less restrictions on lending.  While this formula looks frighteningly familiar, we are assured by NAR leadership that this time is different.  No one wants a repeat of 2008!!

     With bipartisan support, this act aims to make loan options available to low and middle income Americans who strive for financial independence by reworking the definition of a Qualified Mortgage.  It is supposed to improve access to credit while still protecting loan consumers from bad loans.  In addition, it would amend the Truth in Lending Act that deals with points and fees to help maintain a healthy and competitive marketplace for loan applicants.

     While there’s politics in favor of both sides on this issue, bipartisan support in a vote 286-140, shows that congress wants to make the goal of homeownership more available to all Americans.

Crucial Facts of FHA

When you are looking to buy a home with one of these new low interest rate, low downpayment options offered by the FHA, there are certain minimum requirements the house must meet.  Having these requirements mostly protects the lenders.  In the case of foreclosure, they can guarantee a bigger return on their investment than if the place is a bust.  However, it is also operating under the philosophy that those who inhabit the home are more likely to work harder to keep the property because of the comfortable condition it is in.  The requirements of a house to receive a government backed loan are mainly concerned with safety.  An FHA appraiser will most likely look for items on this list.

  • System and Appliances will be checked for functionality of utilities.
  • Appliances themselves must work.
  • All electrical outlets must be in working order and have cover plates.
  • Proper & adequate drainage away from the foundation
  • Heat system is properly functioning as well as A/C if applicable.
  • Hot and cold water must be working in faucets and water pressure must be sufficient.
  • All toilets must flush and be mounted.
  • Water heater must be up to local code.
  • Attics and crawl spaces must be properly ventilated or insulated with no significant damage, such as standing water or exposed wiring.
  • Paint condition on homes built before 1978 will be inspected due to lead based paint being manufactured before then.  Any chipping or peeling will not pass.
  • No termite infestation.
  • No broken windows and all of them must be functioning as intended.
  • Fire and carbon monoxide detectors must all be up to local code.
  • Any hazard to health or safety or to the long term economic viability of the property will be subject to the FHA appraiser’s judgement.
  • Cannot be over 2 layers of existing roofing

     These are the major deal breakers when it comes to getting your home appraised by the FHA.  The best thing to do is not get your heart set on a major fixer upper.  While it may prove easier to qualify for an FHA loan, it is not necessarily easier to find a home to purchase.  It is best to find a home you want to live in long term using an FHA loan, than as an investment venture.  Remember, you can always remodel and improve a quality, functioning home that maybe just has an outdated look.  It will still be a great investment!

Wednesday, April 15, 2015

Say Wha???... Learn The Mortgage Lingo!

        For the first time homebuyer, the experience can sometimes be overwhelming.  A whirlwind of terms and house tours, the last thing a homebuyer needs is to feel like they're negotiating in a foreign language.  Once you have a basic understanding of real estate and mortgage terminology, your eyes will no longer glaze over when your broker or agent start talking.  You’ll be able to actively engage in the negotiations and that means getting what you want!  Before you make one of the largest investments of your lifetime, protect your hard earned money by learning the lingo.

You’re downpayment represents your own personal risk in buying your home.  Traditionally, this amount is 20%, although new mortgages made available allow a mere 3.5% downpayment.  When lenders are considering a first-time homebuyer’s downpayment, they examine the “seasoning” of it, making sure the sum has been in your account for 60 to 90 days.

When finalizing your loan, “points” refers to the percentage points your lender will charge you for your loan.  They are negotiable.  For example, 1 point on a $300,000 loan, means you will owe an additional $3,000 at the closing of the loan.

This is a term more people are familiar with, but don’t necessarily pay attention to.  While the interest rate can give you an idea what your monthly payments will look like, the APR gives you a better idea of the true cost of your loan because it includes your fees and points.  If you are deciding between two loans with the same interest rate, it’s best to compare the APR against the two loans because one is likely to be lower than the other.

Origination Fee
This fee is essentially a processing fee for your loan and can take on various forms.  Processing fees, underwriting fees, origination charge or origination points are ways this sum can be expressed on your Good Faith Estimate (GFE).  This fee is also negotiable as it is intended to pay commissions.  A mortgage with no origination fee means the broker is paid by the bank.  While this sum is negotiable, it often translates to higher interest rates which can really add up over the lifetime of a loan.

Discount Points
If you plan on staying in your home for the long term, discount points are a good way to save money.  Discount points is paying interest in advance to buy down your monthly payment, or interest rate.  Recouping the value on buying down your rate can take time, but if you’re planning on staying there for a while, will pay off in the long run.

Closing Costs
This is a blanket term for all the fees and costs in addition to the loan amount.  Originations fees, title fees, appraisal fees, underwriting fees, attorney fees are all included in this amount.  A lot of times these fees are financed as well which can significantly hike up your monthly payment.  It is negotiable that the seller of the home help cover some of these costs.

The Closing
The last official step in closing the deal.  It usually takes place at a title office where the title changes hands after you and the seller sign dozens of documents in the presence of the title company’s escrow officer and real estate agents.

Don’t be afraid to ask your loan officer or real estate agent questions if there is any jargon that you do not understand.  We are industry professionals and have created this lingo to make our jobs easier, but a big part of our job is making sure you understand the terms of the deal.  With a basic knowledge of industry short-hand, you’ll be able to captain a deal that’s best for you and negotiate your way into a new home.

Sunday, April 5, 2015

Mortgage Tips for the Self Employed

Thanks so much guys for having lunch with me last week and listening to me talk about mortgages.  I think it's the most exciting of topics!  Most of you who attended my lunch and learn with the Richmond Business Alliance were self employed, or small business owners, so I hope my advice was helpful for those of you looking for a mortgage!  There are lots of benefits to being self-employed, however, applying for a mortgage can be daunting when you essentially write off all your income.
Here are a few helpful tips we went over at lunch last week:
  • Plan ahead.  Your lender is going to need two consecutive tax returns to calculate your income.  We average the two, so if you make $11,000 one year after deductions and $80,000 the next, your odds for getting the amount you want still won’t be favorable.  
  • Don’t be cheap, get a CPA.  These are the people who can give you the P & L statement that you need and verify the existence of your business.  You cannot file taxes yourself and request a P & L statement from an accountant, it doesn’t work like that.  Let them know that you want to purchase a home in the next few years, and they will also help you plan accordingly.
  • It’s okay if you’ve been self-employed for less than 2 year. This doesn’t mean you can’t get a mortgage.  However, you need to be in the same line of work.  Example, a doctor decides to open his own practice.  As long as you have history in the same field, some investors will allow less than a 2 year history of self-employment income. 
  • Keep your personal finances and your business finances as separate as possible.  If you solely own your company, then yes, you could potentially get a loan using money from your business.  However, if you have a partner, they’re now involved in your loan process. They’re also going to ask your CPA if taking out that loan will endanger your business, which they might not necessarily know.  It is best to keep your personal expenses away from your company.

Hope some of these tips help the many of you looking to buy a home who are self-employed.  Congratulations to Enrique Mendez, who won my summer-fun gift basket yesterday!  I had a good time chatting with all of you!