FHA is a Good Option

November 27th, 2017

FHA is a Good Option

FHA insured mortgages serve a sector of the market that is not necessarily being met by other loan programs.

Securing an 80% conventional mortgage that doesn’t require mortgage insurance may be the lowest cost of financing but if the buyer doesn’t have 20% down payment, it isn’t really an option.

There are conventional loan programs with as little as 3% down payment but they not only require mortgage insurance, they also require a credit score of 740 or above which may eliminate some buyers.Securing a 100% VA loan doesn’t require a down payment or mortgage insurance but if the buyer isn’t a veteran with his/her eligibility intact, it isn’t an option either.

For these reasons, FHA is a viable alternative to about 20% of new and existing home sales. The Federal backing of these mortgages makes it easier for first-time and low-income buyers to qualify because the requirements are not as demanding. They’re even more lenient towards buyers who have previously experienced bankruptcy, foreclosure or a short sale.

Finding the right mortgage for the right home is a team effort where both mortgage and real estate professionals work in harmony to get a buyer into their own home. Call us at (952) 358-9694 for a recommendation of a trusted mortgage professional.

General FHA loan requirements include:

  • The loan is for primary residences only but can include two, three or four units.
  • The property must be appraised by an FHA-approved appraiser.
  • The property must be safe, sound and secure, in compliance with minimum property standards as defined by the U.S. Department of Housing and Urban Development.
  • The borrower must be a legal resident of the U.S. and have a valid Social Security number.
  • The minimum credit score of 580 with a down payment of at least 3.5 percent, or a minimum credit score of 500 with a down payment of at least 10 percent.
  • The borrower may not have delinquent federal debt or judgments, or debt associated with past FHA loans.
  • The borrower must have steady employment history.
  • Documentation is required if the down payment was gifted by a family member.
  • The borrower must have a debt-to-income not exceed limits of 31% for front-end and 43% back-end ratio (some exceptions may apply).
  • Any judgments or collections on the credit report must be resolved or satisfactorily explained.

Lighting Conversion Plan

November 27th, 2017

In 2007, Congress passed an energy act that required new energy-efficient standards for basic light bulbs. Standard incandescent bulbs are being phased out and eventually will be unavailable.

One approach will be to inventory the different types and quantities of light bulbs you need in your home. Then, research either online or a big box store to find out what each type of bulb costs. This information will give you a total budget for converting your lighting.The alternative bulbs differ considerably in price. LED bulbs are the most efficient but they also cost the most. CFLs are a less expensive alternative.  Interestingly, the more expensive replacements offer lower operating costs and longer economic life.

It could be a significant expense to replace all the bulbs in a home at one time, especially when most of the bulbs still work. That’s where a plan might make sense.

Replace the bulbs in the rooms where the lights are used the most such as kitchen, family rooms and bathrooms. There may be other “rooms” where the lights are used frequently like certain hallways or stairs. Outside flood lights for security purposes may be a large energy consumption.

Bulbs can vary in light output measured in lumens as well as color of light from warm white to bright white and daylight. The lighting label required by the Federal Trade Commission on all packaging will help you determine which will give you the most bang for your buck.

Holiday Travels

November 27th, 2017

The last thing you want if you’re traveling these holidays is to worry about someone burglarizing your home. Use this check list to add some peace of mind while you’re out of town.

  • These easy-to-handle suggestions may protect your belongings while you’re gone while adding a level of serenity to your trip.Ask a trusted friend – to pick up mail, newspaper and keep yard picked up to avoid an appearance of being empty.
  • Consider discontinuing your mail (USPS Hold Mail Service)
  • Don’t post about your trip on Facebook and other social media until you return – some burglars actually look for this type of announcement to schedule their activities.
  • Do notify police or neighborhood watch – especially if you’re going to be gone for more than just a few days. Let your monitoring service know when you’ll be gone and if someone will be checking on your home for you.
  • Light timers make it look like someone is home – use several sets for different times to better simulate someone being at home.
  • Do unplug certain appliances – TV, computers, toaster ovens that use electricity even when they’re off and to protect them from power surges.
  • Don’t hide a key – burglars know exactly where to look for your key and it only takes them a moment to check under the mat, above the door, in the flower pot or in a fake rock.

Up-front Points to Lower the Rate

October 30th, 2017

When loans are quoted by lenders, most buyers pay attention to the interest rate but not so much to the points that may be charged along with the rate.

A lower note-rate would obviously make the payments less. However, with a little analysis, you can determine how much points paid up-front can save a borrower or whether you’ll recapture the additional costs in the anticipated time in the home.A point is one-percent of the mortgage amount and considered pre-paid interest that affects the yield on the loan. Buyers or sellers can pay points but there can be limits based on underwriting guidelines for different types of loans.

In the example below, two choices are compared; a 4.25% loan with no points vs. a 4.00% loan with one point. If the buyer stays in the home at least 69 months, he will recover the $2,700 cost for the point on the lower interest rate.

If the purchaser stays ten years, he’ll save two thousand dollars over the cost of the point. A less obvious advantage will be realized because the unpaid balance on the lower interest rate loan will results in an additional $1,780 savings.

This is an example of a permanent buy-down but temporary buy-downs are also available.  A trusted mortgage advisor can help you determine alternatives.

Debt Relief May Trigger Tax

October 23rd, 2017

The Mortgage Debt Forgiveness Act, originally passed in 2007, was extended three times to protect homeowners from paying income tax on debt that was relieved due to foreclosure, short sales or deed in lieu of foreclosure.
A homeowner might feel a sense of relief without the obligation of a delinquent mortgage but just because the payments are no longer due doesn’t mean that there isn’t another obligation that replaces it. If a lender cancels or forgives debt, a taxpayer must include the cancelled amount in their income for tax purposes depending on the circumstances. The tax significance could be serious.The law expired on December 31, 2016 and unless it is extended again, homeowners with debt relief in 2017 may be subject to tax.

This previously allowed relief only applied to a taxpayers’ acquisition indebtedness of their principal residence which did not include second homes and investment property. The maximum amount was limited to $2 million of mortgage debt forgiveness or $1 million if filing separately.

Due to the serious consequences involved in short sales and foreclosures, it is advised that homeowners faced with this possibility should seek expert advice from their legal and tax professionals.

 

Indecision is Not a Decision

October 16th, 2017

There could be some legitimate reasons for not buying a home but indecision is not one of them. Indecision is rooted in not having enough information to move forward to own a home or continue renting.
When you consider principal reduction, appreciation and tax savings, your monthly cost of housing could be much less than the rent you’re paying. The principal reduction included in each payment is like a forced savings account that increases as your mortgage balance decreases. Your equity in the property will also grow due to appreciation as the home goes up in value. The equity is part of your net worth and an investment in your family’s future. If you keep renting, at the end of the year, you have had a place to live and a pile of receipts that helped the landlord pay for his house. Deciding to buy a home will give you a place to live that is yours and all the things that come with that.

The income tax savings can be an additional financial consideration if the combined interest and property taxes are greater than the allowable standard deduction.

Trends are showing that both tenants and homeowners are staying in their homes longer. It’s been said that whether you rent or own, you’re paying for the home. Do you really want to buy the home for your landlord? Check out your numbers on a Rent vs. Own and then, call us to help make it happen.

Risk Rate Relationship

October 9th, 2017

Regardless of what a lender quotes on mortgage rates, the actual rate a borrower pays is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.

Loan amounts – conventional mortgages above conforming limits as set by Fannie Mae and Freddie Mac are considered jumbo loans and generally have a higher interest rate. Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved.

  • FICO score – the lowest interest rate is reserved for the highest score; the lower the score, the higher the rate the borrower will pay.
  • Occupancy – borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.
  • Loan purpose – purchase transactions generally have the lowest interest rate with refinancing for better rates and terms being priced slightly higher. An even higher rate might be charged for refinancing and taking cash out of the property.
  • Debt-to-Income Ratio – a borrower’s monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower’s ability to repay the mortgage.
  • Property Type – some types of property are considered higher risk than others which could adversely affect the rate.
  • Loan-to-value – the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.

Any combination of these factors could limit a borrower’s ability to secure a mortgage at the rate initially quoted. Pre-approval by a trusted mortgage professional can be the best way to know what rate you can expect to pay. Please call for a recommendation of a trusted mortgage professional.

Pre-approval is Good for Everyone

October 2nd, 2017

Buyer’s mortgage pre-approval is good for everyone in the transaction. It saves time, money and removes the uncertainty of knowing whether the buyer will be qualified after negotiating a contract. The direct benefits include:

  • Looking at “Right” homes – price, size, amenities, location
  • There is a significant difference in having a trusted mortgage professional take a loan application and run all the necessary verifications compared to going through calculators on a lender’s website. Beside the peace of mind, the cost of being pre-approved is a bargain and generally, limited to the cost of the credit report.Find the best loan – rate, term, type
  • Uncover credit issues early – time to cure possible problems
  • Negotiating power – price, terms, & timing
  • Close quicker – verifications have been made

Even if a person has been pre-approved, a second opinion from a different lender may be a good option. It can verify there is a good deal or you’ll discover that you can improve it. Either way, it works to your advantage. Contact me if you’d like a recommendation of a trusted mortgage officer.

Easier To Play The Game

September 25th, 2017

It’s much easier to play a game when you know the rules so you can avoid mistakes that may keep you from winning. Homeownership isn’t a game but there are some rules that will protect your investment and increase your enjoyment.

Most people want a home of their own to raise their family, share with their friends and to feel safe and secure. In most cases, it is also their largest asset. These suggestions can help protect your investment and make homeownership more enjoyable.

  • Don’t overpay for your home
  • Maintain your home to protect its value
  • Minimize your assessed value to lower property taxes
  • Make extra contributions to save interest and build equity
  • Validate the insured value of improvements and contents
  • Be aware of current surrounding property values
  • Make mortgage interest payments deductible
  • Invest in capital improvements that increase market value
  • Don’t over-improve the neighborhood comparables
  • Keep records of capital improvement & other maintenance

 

We’d like to be your personal source of real estate information and we’re committed to helping from purchase to sale and all the years in between. If you need assistance with any of the items mentioned in this article or need a recommendation for a service provider, it would be our pleasure to help.

Protecting Your Credit

September 18th, 2017

One of the “big” three credit bureaus recently announced that a massive hack has exposed the personal information of up to 143 million people. To add perspective to that statement, that is about two-thirds of American credit card holders or close to half the population of the United States.  Part of protecting your credit is being vigilant and making it difficult for thieves to steal your identity.

The initial fraud alert will make it harder for an identity thief to open accounts in your name. The alert lasts for 90-days and it can be renewed.If you suspect you are a victim of identity theft, an initial step is to place a fraud alert on your account. Contact one credit reporting company (Equifax, Experian or TransUnion), tell them you are an identity theft victim and ask the company to put a fraud alert on your credit file. Confirm that the company will contact the other two companies.

A more severe precaution called a credit freeze restricts access to your credit report. A credit freeze makes it more difficult for thieves to use your identity to apply for loans or credit cards in your name.

By contacting each of the three credit reporting agencies separately, you can request a temporary freeze. This would prevent them from providing credit information without both your explicit permission and a PIN that temporarily lifts the freeze.

Unlike the fraud alerts, the agencies may charge you a fee for instituting the freeze in addition to another fee to lift the freeze each time.

A credit freeze will not affect your credit score. If you are in the process of buying a home, contact your loan officer and discuss the decision you are considering. If you will be making a mortgage application in the near future, you can temporarily lift the freeze for the lender you are using.

A trusted mortgage professional is a key team member in purchasing a home. Making an appointment with them is one of the first steps along with determining your real estate professional. Contact us to get a recommendation of a trusted mortgage professional.

To request a credit freeze, you can do it online or by phone:

Equifax – 800-349-9960 | Experian – 888-397-3742 | Trans Union – 888-909-8872

For more information, see Credit Freeze FAQs at the Federal Trade Commission.

It is important to personally monitor your credit reports through annual credit report.com to discover any unusual activity.