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Buying a Home is Becoming More Expensive

marcus — Fri, 29 Jan 2010 12:30:47 +0000

Although home prices haven’t increased much and interest rates have remained steady over the past year, it’s still going to be a more expensive to buy a home soon. The Federal Housing Authority (FHA) has decided to increase the down payment requirements on the mortgage loans they guarantee/insure. This down payment was increased a year ago to its current level of 3.5% of the purchase price. (Ex. $100,000 purchase price X 3.5% =$3,500 down payment). Buyers can still obtain a mortgage for the 3.5% down payment, but they must meet a minimum credit score. Additionally, the FHA insurance premiums will increase on each loan and the amount a seller can contribute to offset the buyer’s closing costs will be reduced to 3% from 6%. FHA insures the majority of mortgage loans held by borrowers that would traditionally not qualify for a mortgage on more conventional mortgage loan routes…as called bank loans. FHA appears to be adopting more stringent guidelines for its borrowers, however, conventional loans generally require at least a 20% down payment and much higher credit scores. (Ex. $100,000 purchase price X 20% = $20,000 down payment). FHA is more lenient on past credit issues and is accepting of credit scores below 600.

marcus — Mon, 25 Jan 2010 21:27:23 +0000

Mortgages are loans made by banks and lenders that package these loans (securitize) and sell them on Wall Street in the form of bonds called mortgage backed securities (MBS). The money made from the sale of the MBS them goes back to the bank/lender so they can complete more loans. The mortgage payments made by the homeowner eventually pay the investor that has purchased the MBS in which your mortgage resides with other like mortgages.

When the foreclosures started piling up, investors on Wall Street didn’t want to buy these MBS, which dried up bank’s and lender’s continual cash resource from the investor markets. The dried cash pools prevented lenders from mortgage lending. The White House administration pledged $1 trillion dollars to the buy those unwanted MBS, so that lending could continue and keep the housing market alive. The federal government’s involvement allowed mortgage interest rates to fall from 6% to its lowest 4.7% within a year of its involvement and made the volatile housing market an attractive bet as the government announced a healthy profit from its investment into the housing market.

The US Treasury department believes the federal government’s involvement into the housing and MBS markets was supposed to be short-lived and its purpose now completed. Although, many believe it’s too early for a government pullout of the fragile housing market because sales are low and the economy is ailing, but investors and housing market professionals could easily become reliant on the government’s presence and never allow the markets to fully strengthen to a self supporting level.

Loan Modification Process Strained

marcus — Tue, 15 Dec 2009 20:27:49 +0000

The Obama administration and the US Treasury dept are vowing to pressure the mortgage industry to administer more loan modifications as permanently modified mortgages have not kept up with the number of troubled households owning homes. While 14% of homeowners with a mortgage are facing foreclosure, only about 2% of homes applying for modifications have been approved.

The mortgage loan modifications were supposed to reduce the mortgage interest rate thus providing a lower payment for three months. At the same time borrowers were to provide financial documents to include an explanation of hardship. Banking officials are responding that many homes placed in a temporary plan failed to make timely payments for the temporary period or simply failed to provide paperwork. Lights of a recovering real estate market could be dimmed if the foreclosure crisis isn’t contained before another wave of adjustable rate mortgages reset in the new year.

There’s Money in Your Home’s Walls

marcus — Fri, 04 Dec 2009 16:11:13 +0000

A “new-again” trend is resurfacing within the real estate market. People are staying in their homes and remodeling. Sagging real estate values and lack of equity has ushered in the thought of “sweat equity*” and an extended time in a home as major factors to increasing a home’s value. The US Census Bureau states that over the last year remodeling projects has replaced new construction in over 20% of all new business. In addition, spending on remodeling has experienced nearly a 9% increase since this time last year. The $1500 federal tax credit for installing/upgrading energy efficiency systems into homes has lead the charge on many of the remodeling projects across the nation. The tax credit could actually offset the remodeling project costs and lower your energy financial obligation. *Sweat Equity – is the idea that physical work on a project will heighten the value of the item on which the work is being performed.

Housing Statistic Speak Volumes for Economy

marcus — Tue, 01 Dec 2009 18:43:25 +0000

Pending home sales have increased over the last nine months to a level not surpassed until before the 2006, before real estate market bubble burst. Pending home sales are homes on the market for sale and have a buyer willing and signing to purchase the home. Although the housing statistic is great news for the economy, the reasons for the increased numbers are based on temporary factors. These factors include the home buying market taking advantage of the extended 1st time homebuyer credit which was extended from November 2009 to April 2010. In addition, many home buyers are leaping at the opportunity to purchase homes that have reduced value in the depressed market. The large majority of homes registering as pending home sales fall below the $250,000 range.

Economic Indicators Speak Volumes

marcus — Wed, 25 Nov 2009 14:09:34 +0000

The economy seems to be quietly making a turnaround. New jobless claims, which consist of newly unemployed persons, fell this month to its lowest level in over a year. The number of newly unemployed persons went to slightly over 466, 000 persons. In addition, the level of persons on unemployment benefits went to its lowest mark since February 2009 at 5.4 million Americans.

Additionally, housing prices are up for the fourth consecutive month and serve as an additional sign the nation’s economy is waking up. Although housing prices are lower than last year this time, durable goods orders are lower than expected, and a steady increase of gas prices, any trace evidence of positive movement of the world’s largest economy is enough to promote investment in the nation again… translating to more jobs and economic growth for all…hopefully sooner than later.

The Benefits of Homeownerrship & Congress

marcus — Thu, 15 Oct 2009 18:31:15 +0000

A major part of financial literacy is an understanding of the rules of money. And there is nowhere better place to learn about rules than within hall of Congress. After all, these are the lawmakers of our society and they decide upon taxes levied and the regulation of commerce. The easy thing about money management and congress, is you actually have some input into the laws affecting your money. One method of injecting your opinion is by participating in elections with votes based issue positions and political accountability and not on incumbency and political parties. Another method is to contact your legislators directly by email, phone or letter and encourage others to do the same.

Currently, Congress is considering increasing the minimum down payment for a government backed FHA mortgage to 5%. That means if a home is selling for $150,000, a mortgage applicant would need to place at least $7,500 as a down payment. A little more than a year ago the minimum down payment for FHA mortgages went from 2.25% to 3.5% as a response to the high ratio of foreclosing homes…although the majority of defaulting mortgages were with creative and exotic mortgage products held by the banks. Raising the down payment minimum will lengthen the time for home purchasers to save for a home, while possibly slowing a still depressed housing market.

Additionally, the $8,000 tax credit to first time homebuyers is about to expire in November. This $8,000 credit has breathed a significant amount of life into declining housing markets and has helped thousands achieve the American Dream of homeownership. However, Congress is discussing the option of extending the tax credit.

So as you can see, without at least a proper understanding of Congress’ actions, a person saving to purchase a home next January, could be heavily disappointed by the lack of an $8000 tax credit and the need for an additional $2,250 towards a down payment, when using the aforementioned $150,000 home price.

Is a Short Refinance an Option for Loan Modification?

marcus — Thu, 25 Jun 2009 04:45:58 +0000

Millions of American homeowners are communicating with their mortgage loan companies for a loan modification. Many homeowners are experiencing varying degrees of success and failure with mortgage re-structuring efforts, but there is a lesser sought-after avenue that provides a win-win situation for the distressed homeowner and mortgage lender from encountering a costly foreclosure called the short refinance.

As most modifications go, the homeowner wants the payments (and probably the principal) reduced to make the home affordable and the lender wants the loan paid on time or in full. According to various non-profit mortgage associations, rarely has the principal been written down on loan modification request. The lender will temporarily reduce the interest rate and even extend loan term to 40 and even 50 years. However, in loan modification cases that fail to reach an affordable level for the homeowner, a short sale is usually recommended to prevent foreclosure. The short sale will sell the home at a discount often comparable to foreclosure levels. The lender accepts the reduced sale price for the home without having the cost of foreclosure to bear and the homeowner avoids a foreclosure auction and possible eviction from the home. However, financial literacy would tell one that if a lender will accept a reduced pay-off for a loan balance through a sale, then why not short refinance the home for the reduced/short sale amount? The affects are the same as a loan modification with the exception of the creation of a new loan made based on a realistic and “corrected” property value. In addition, the homeowner is refinanced into an affordable home with an affordable mortgage.

Understanding Affordability is a Major Part of Financial Literacy

marcus — Thu, 11 Jun 2009 04:09:38 +0000

I recently got a call from a friend whose grandparents (80 years old) were placed into an expensive “no documentation” residential mortgage loan that is now foreclosing. The grandparents were seeking cash for medical expenses and didn’t qualify for a loan requiring full documentation of income and income sources. However, due to their excellent credit scores, they qualified for a riskier loan product that would forgo the process of verifying financial ability and documentation. Well, the mortgage interest rate adjusted and the medical expenses increased, the grandparents found themselves in an all too familiar situation… unable to afford their home of over 25 years and facing foreclosure. Key point to remember here is that everyone must understand bank loan qualifying standards are set to insure the loan applicant has a clear and certain ability to repay the loan in a timely manner. The mortgage company that determined the grandparents couldn’t afford the mortgage under normal conditions was wrong for suggesting the “no documentation” loan product with an unchanged understanding of the grandparent’s finances. Of course, after managing to maintain stellar credit, the grandparents should have been able to see that the riskier mortgage was more expensive and could reach an unaffordable level. But the thought of receiving an approval by creditors gives a false sense of security that the bank believes the loan requirements were manageable and affordable. In mortgage lending, irresponsibility in one’s fiduciary relationship to the client is inexcusable. The applicants are people… grandparents… who are relying on the guidance of the mortgage professionals and misuse of this trust relationship can lead to heavy fines on the lender. However, when mortgage professional are dealing with the elderly, there are additional laws that prevent and prosecute predatory lenders.
I know it’s not always great to get an unapproved status back on a loan application, but sometimes it for the best. Beware of risky loan products that speak beyond your level of financial literacy and discuss options with unbiased financial professionals (like CPA’s) outside of the transaction. If you feel you or someone else has been illegally advised on a mortgage transaction, contact your state’s attorney general and professional licensing commission arm.

First Time Homebuyer Credit More Accessible

marcus — Tue, 02 Jun 2009 20:54:31 +0000

Buying a home in this market is a no-brainer to anyone that understands financial literacy. Home values are at an all time low, the inventory of empty homes are higher and mortgage interest rates lower than any other time in recent history. However, since the economy is still in the “red” and news reporters are constantly trumpeting the woes of the employment market and the uncertainty of the nation’s financial future, many homebuyers are nervous to invest hard earned funds into a struggling housing industry. A little over half of all homes being purchase are a result of a foreclosure or short sale. Many of the homes may need costly repairs or maintenance that has likely been deferred, especially if the owners were experiencing financial difficulty and if the home was headed to a foreclosure status. The government and mortgage lending banks are making it easier for 1st time homebuyers to obtain the money to satisfy the newly imposed higher down payments and costly mortgage closing costs. Since the onset of the housing market decline, the government created an $8000 tax credit to first time homebuyers to offset the expense of buying a home and to encourage timid and market shy buyers to enter the market. But since tax time is so long from now, there is a new allowance to access the $8000 homeowner tax credit for the purchase of a home prior to completing the purchase. The $8000 1st time homebuyer tax credit cannot be used as a down payment, but it may be used to pay for closing cost. This is a great way to access affordable housing and take advantage of the bargains in the housing market and the homebuyer doesn’t have to wait until next year to realize the benefits.