The first step in Home Buying

The first step in home buying is making an honest evaluation of your current situation.  This review should include several factors.  Of course, you may be emotionally charged about some of your reasons.  I would caution you to sit back and put everything on a pad of paper.

Right now, you might not even be aware of the things you need to consider. It is quite possible, you have read an article or had a conversation with someone and now you think it is time to buy. Let’s take a look at some of the arguments for and against buying now. Using this information will get you started in a focused manner.  Understand, you are an individual and there is no cookie cutter answer. Let’s see if I can’t separate the proverbial chaff from the grain. Hopefully, I can separate fact from fiction with the following.

  • “It is cheaper to buy than it is to rent.” This statement is usually shared by a real estate agent or a mortgage broker. As an aside, in the future when evaluating a statement, take a long look at who stands to benefit financially from the statement.  Now, if you are paying $1,500 a month in rent and you are told that your mortgage payment will only be $1,400 per month, buying still may not be cheaper.  The terms of your loan are very important.  You see, if your situation changes and you can’t pay the $1,500 in rent, you will have to move. If you break your lease, you will have to pay at least a two month penalty ($3,000). Your landlord may agree to accept the money or make a payment plan with you. Your credit may or may not be impacted. If your situation changes and you can not afford the $1,400 per month mortgage, you will have to move.  It doesn’t matter if you use a short sale or turn the keys in or if the lender forecloses, your credit will be impacted. Remember, most leases are for one year, most mortgages are for 30 years.
  • “Buying a home is a good investment”. Hmmm, this statement is usually shared by the same group that shared the first statement.  The most recent melt down of the real estate market should give you a clue to the validity of this argument.  Yes, over the long term ( 20 years or so ) the value of a home has historically  increased.  Depending on who is sharing the statistics, you home could double or triple in value over time.  I am not a financial advisor, but I did spend the night at a Holiday Inn and I promise you that no one can guarantee the future value of any home.  I do know that just about everyone that bought this line in recent memory owns a home that is worth less than they currently owe. From where I sit, that is not a good investment.
  • “Owning a home is the American Dream”. Well, this makes it a perfect tri-fecta. It is another statement shared by the folks that brought you the first two statements.  It is my humble opinion that the American Dream is much more that owning a piece of land. Part of the American Dream includes the freedom to choose whether we rent or we buy or if we just want to push a shopping cart and sleep on a heating grate.  Just because “Madison Avenue” attempts to guide your vision, you don’t have to buy into the hype.

What should you evaluate before beginning the process?  I would encourage you to ask yourself the basic questions that have withstood the test of time.

  1. Why do you have to move and why do you want to buy? Your reason for moving does not have to be the same as your reason for wanting to buy.  They are separate issues.  Wanting to buy must be tempered by your ability to buy.  Your ability to buy can best be evaluated by a loan officer.  It is a simple process.  You tell them about your financial situation and they tell you how much money you can afford to borrow.  Of course, you probably should limit your loan amount to what you are comfortable paying and you should have the evaluation done on a fixed rate loan. Using one of the fancy adjustable rates on  your first home is usually a prescription for disaster.
  2. When do you want to buy? Unless you have other reasons, you should avoid buying when the market favors sellers.  Agents will have me for this, but I believe that October through February is when buyers have the most leverage. (If you can time your purchase around the time between Thanksgiving and Christmas, you may be in a really strong position.)

The first step in home buying is making an honest evaluation of your situation.  Write down the pro’s and con’s. Then sit down with a lender and get a clear picture of your financial situation. Listen to their advice. Then get it all in writing in a good faith estimate and a work sheet. Get both.  Then, if everything is a go, move to step two…make a careful examination of your needs.  I will cover my thoughts on step two in my next article.

As always, if you have any questions regarding the first step in home buying, feel free to contact me.

Snake Oil…makes more sense that sizzle and steak

Trust me…one bottle will cure you in 7 days

There was a time when Snake Oil salesmen travelled from town to town selling their product. They would set up shop on a street corner or in a vacant lot and begin extolling the curative powers of thier elixer.

“Friends, I can see many of you suffering from ill health. I can hear the coughs, the sneezes and the wheezing. You are suffering. Today, you will suffer no more. Buy one bottle of my Mozillo Snake Oil, take a table spoon every morning and I guarantee that within 7 days you will be symptom from. You will be cured! Some of you may remember I was here 6 short months ago. I see Jack Queen over there. Jack, you bought a bottle… tell the folks what happened.”

The older fellow, Jack Queen responded, “Why I was on death’s very door. I took the medicine and 7 days later I was cured. Used it in on Ezra Tucker a month or more back, he is fit as a fiddle today.”

The crowd begins to line up and within a short time, the Snake Oil salesman has sold out of every last bottle he had brought with him.  Men, women and children headed back home to begin the cure. Tissues in hand they made there way to the comfort of warm living rooms and comforter covered beds.

Seven days later, the sun rose on the town and every one of those that had taken the medicine was symptom free. They met one another in the market or at the coffee shop or in the library and shared how wonderful it was to be well again.  They were convinced that the Snake Oil was miraculous.

Then fact seperated fiction and reality replaced illusion … and the Snake Oil salesman had to find a new product. Modern medicine stepped up and revealed that the common cold usually last anywhere from 3 to 7 days. The discomfort is most easily dealt with by staying warm, inside and getting plenty of rest. If you just completely ignore the cold, chances are it will disappear within 7 days. The Snake Oil did have a correlative relationship to the cure…but it was not causational.

This Snake Oil was just as easy to take, but it cured no ills

The most recent products have been the multiple servings from the mortgage industry. They have created all sorts of variable priced loans. A borrower can choose from an “adjustable rate”, a “teaser rate”, “interest only” or one of the other fancy terms used to describe the pandora’s box of options presented them. They are all “legal”. They all do exactly what they claim to do. They all remain available. And, if judged with a careful eye, they are as valid as the Snake Oil of days gone by.  If you take out a mortgage, with one of these instruments, you home will be paid for in full at the end of the term of the loan.

The difference between Snake Oil taken to cure the common cold and this new version is quite apparent. The common cold was going to run its course over 7 days. Regardless of whether or not you took the medicine, you would be cured. The new version requires that you actually follow the terms of your loan.

BIG DIFFERENCE

The salesman may extoll the wonders of a loan that begins at a much lower interest rate (say 3.5%) and he may show the borrower a chart that indicates the monthly payment for a $200,000 loan will only be around $1,360 per month. He will point out that the borrower only need an income of around $57,000 -$58,000 to qualify for this wonderful program.

If asked about the a(djustable) r(ate) part of the loan, the salesman will most likely point out that the borrower is young and will be making more money by the time the loan resets (increases in monthly payment) and the home will probably be more valuable then as well. He will imply…Why wait, you can have more home now? The fine print that caps the loan at 8% is mentioned in passing.

Let’s be very clear. This is all legal. This is all true. This is all based on IF. We have an entire industry in taters because no parent, no boss, no legislature, no official demanded that WHAT IF should be part of the conversation. Literally millions upon millions of people drank the new Snake Oil and IF never happened.

WHAT IF regulations were in place that stated the person with an income of $57,000-$58,000 could only borrow enough for a $135,000 home if the interest rate could cap at 8%? All the other IFS would have little impact on the borrower. Their earlier home payments would be lower, but they would cap out at an amount that the borrower could still afford. (less than $1,400 per month)

A sign of the times

It is time that we stop blaming the Snake Oil and start restricting the salesman. History has proven, when it comes to financial planning and budgeting, we need to be protected from ourselves. Despite the rare headlines pointing out isolated cases of mortgage fraud, most people took the emotional route when borrowing money to buy a home.  They believed that their income would rise. They believed the value of the home would rise. They believed that the mortgage would never reset to the highest limit. They did not believe lies…they believed in maybes. They grasped the IF with both hands and WHAT IF was left to linger in the corner with the reat of the never completed thought processes.

None of the usual reasons offered caused the housing crisis and melt down. The correlation between everything offered is certainly reasonable. Snake Oil will always be around. It really will never harm anyone as long as it is taken with a healthy dose of reality. And in reality, lending money based on hopes and prayers is something that needs to be terminated.

One of the wisest steps the administration could take would be to refuse to guarantee or insure any mortgage loan amount in excess of what the borrower could afford to repay based on the amount borrowed at the maximum interest rate the loan will allow.

Just a thought, of course, I may have sipped some Snake Oil before breakfast this morning.

So You Want to Buy or List a Condo…Will Financing Be Available?

 

One of the bigger issues today. Don’t think we are just referring to apartment living. Condo’s can also be town homes. The drop in the market, the foreclosures, the economy and several other factors have turned condo’s into nightmares.

If you have cash, you may still be able to get a bargain, but don’t forget the condo association has bills that have to be paid. If several members stop paying, the others have to make up the difference.

If the association fails, the remaining owners become defacto slum lords. No maintenance, no master insurance, etc.

Bridget knows her stuff..read on and take heed!

 

Via Bridget “Mortgage Mama” McGee (Allied Home Mortgage Capital Corp 410-960-2061):

I got a call yesterday from a realtor (referred to me by Margaret Rome, THANKS MARGARET) who has a client interested in condo living.  There are some fabulous condos on the market, the prices are right, the amenities are fabulous.  For cash buyers, condo living may be a no brainer, but for many the question will be “Will financing be available?”

To determine if the condo is currently approved for FHA financing, click here.

To determine if the condo is currently approved for VA financing, click here. It can take 8-12 weeks for the VA legal department to approve a condo.  Documents including budget and condo docs will be required for review.

The condo association may already be approved for conventional financing by specific investors, your loan officer should be able to determine.  If not, the investor will need at least the following information from any condo association you are considering (if they are not already approved):

  1. 2011 budget
  2. Condo Master Insurance Policy
  3. Signed and Dated Condo Questionnaire

There may or may not be a fee required by the condo associated for gathering the documentation.

Most lenders will  probably not approve financing if:

  • the association is involved in any litigation
  • there is over a 15% delinquency rate on dues
  • the condo is over 20% commercial
  • one entity owns 10% of the condos

Don’t be discouraged if a condo listed for sale is not yet approved for available financing, with some skill, diligence and proper documentation, we can help you to navigate the approval process for condos in Maryland so when someone asks “Will financing be available?”  You can answer “YES” with confidence!

Warm Regards,

Bridget McGee  Maryland Mortgage Mama   Allied Home Mortgage Capital Corp #1448  410-960-2061 EHO

What documentation do I need to get a pre-approval?

 

Finally, one of the finest mortgage folks I know shares insight on just what you need to provide in the process.

Wow….no secrets, just cold hard facts.

Thanks Bridget

 

Via Bridget “Mortgage Mama” McGee (Allied Home Mortgage Capital Corp 410-960-2061):

When a potential client calls me one of the questions they will ask is “What documentation do I need to get a pre-approval?”

Stated income loans are a thing of the past.  Getting a mortgage is a big deal. Lenders are requiring more and more documentation to prove your credit worthiness. In order to ensure that I am giving the most accurate pre-approval letter I will require the following:

1.   Mortgage Credit Report-I will need your full name current address, social security number and birthdate. I will pull this through my credit agency unless you have a copy of one that has been pulled in the last 15 days through a mortgage company.  Consumer credit reports, auto dealer reports, etc. use different calculations to determine your score.  Although these reports will give us a ballpark as to where your score stands, it won’t be used for the pre-approval.

2.  2 most recent consecutive pay stubs.-for both income and deductions (some may need to be included into your debt ratio)

3.  2 years w-2’s -to show consistency of income

4.  2 years tax returns-If self-employed or you have any non-reimbursed business expenses. If a VA loan, tax payments are taken into consideration for income calculation.

5.  Most recent two months bank statements/401K/investment, all pages  I am not only looking for the total of the assets you have available but for:

a.) overdrafts, non-sufficient funds charges

b.) large unverified deposits

c.) transfers to or from a different account

d.) child support payments

e.)  Regular payments by check or transfer that may mean another debt that must be included in your numbers.

6.  If you are getting a gift for closing, I will probably have questions about the donor.

7.  Divorce Decrees, Bankruptcy paperwork may be required in certain circumstances.

Additional documentation will be required prior to submitting the loan for underwriter approval, and even more may be required by the underwriter upon review.  We will work together to make this process as smooth as possible, but be aware that you may be asked to hand over your first born.  Banks are getting more and more strict with lending guidelines so don’t be surprised at the answer when you ask: What documentation do I need to get a pre-approval?

Warm Regards,

Bridget McGee  Maryland Mortgage Mama   Allied Home Mortgage Capital Corp #1448  410-960-2061 EHO

$3,000,000 available….you buying a home, you interested?

If you are saving up for a new home,

you might be closer than you think.

You have read all the information that is available on-line. Maybe you have gone so far as to speak with a lender. You have done the math. A typical FHA loan will require 3.5% down. Depending on the area and the price of the home, closing costs can run around 3% to 4%. If you are comfortable with the payments on a $200,000 home, your out of pocket costs could be $14,000.

Of course, you can use the tools available to reduce that cost. Why reduce it? Well, if you are taking home (that is net pay, after all the stuff they deduct from your check) $50,000… the out of pocket costs are more than 25% of your income. That my friend is a lot of money that you need to set aside.

So much to sort out

HELP !

How ???? How do you reduce the cash you need? It seems as if there is no answer. Closing costs are pretty much fixed. They include escrow money, appraisal, termite inspection, transfer costs, deed recording and title insurance. Most of them are mandated by law and/or your lender. There is no room to cut corners on these costs.

Possible solution : Use the services of John MacArthur and Lourdes Tudela as your real estate agents. These two Realtors work in Washington, DC and the Maryland suburban counties of Anne Arundel, Baltimore, Carroll, Frederick, Howard, Montgomery, Prince Georges and Washington. If you are looking to live in any of those areas, they can help you. As a matter of fact, you can read about Washington, DC by going here and there is a terrific entry about Montgomery County here.

They know the area.

Oh, and they have successfully negotiated for seller concessions to cover most if not all of the closing costs their buyers have faced. You see, there is more to finding a home that just searching the net and driving around. YOU NEED AN AGENT THAT CAN NEGOTIATE THE BEST TERMS FOR YOU.

This is no shell game

John and Lourdes spend a great deal of time researching money sources. They found money that was available for first time buyers before the Government created the tax credit and they have continued to find money after the tax credit ended. There is money available. Right now, they have access to over $3,000,000. It is money that is available. It is money that can be used for down payment and/or closing costs. Sure, there are requirements. FREE MONEY HAS LIMITS. It is still free money.

QUESTIONS

No problem. All you have to do is call 301-509-5111 and speak with either John or Lourdes. They will be glad to go over your situation and point you in the right direction. One small caveat. They have to work for you. If you will be satisfied having two of the best agents in the DC area represent you and you are interested in receiving some of the $3,000,000 that is available, well make the call.

Act now before the money is gone and someone else enjoys a new home, while you are still saving

Short sales made easy… well, easier for some

Finally there is a glimmer of light at the end of the tunnel
In 2009, the Treasury Department introduced the HAFA program to provide a possible option for homeowners who do not qualify to keep their homes through the existing Home Affordable Modification Program (HAMP). The HAFA program took effect on April 5, 2010 and sunsets on December 31, 2012. At this time there is no indication whether or not the program will be extended. Insiders hope that by the time December 31, 2012 rolls around the housing market will have stabilized. The jury is still out on that optimistic view.

The Home Affordable Foreclosure Alternatives program may actually achieve some success where it’s predecessors have failed. It was created as a result of the SNAFU (situation is normal, all fouled up) that existed in the market when the once in a blue moon short sale became the norm in many markets.

HAFA will not keep homeowners in their homes. It’s designed to make the process for getting out of an unaffordable home, without going through foreclosure, more predictable and efficient for all parties involved in the deal. Prior to the announcement of this program, short sales were more hopeful thinking than reality. The market was glutted (and to a large degree today) with homes that were “for sale” in which the lender did not have a clue.

Members of the industry are optimistic that HAFA may succeed because the plan removes several impediments to the widespread use of prior programs and provides incentives to all of the players in the workout mess. To those of us (Tudela MacArthur included) that have been publicly stating that the old way does not work, there is hope.

Here are some examples of the program that will make a difference:

  • homeowners can receive $3,000 toward relocation costs,
  • mortgage investors and loan servicers can receive incentives of $1,500 per loan
  • real estate agents’ undiscounted commissions are honored
  • junior lien holders can receive up to $6,000 in exchange for releasing their liens and agreeing not to pursue borrowers for deficiency judgments.

These are major changes it what used to be considered business as normal when nothing was resolved for 9-12 months. The time lag, effectively removed homes in a “short sale” status from the possible purchase by any home owner that was under a time restraint for making a move. It finally dawned on someone that if a buyer could not be sure they could move into a home in a specific time frame, the home was not truly available. That was not just a short sale…it was short-sighted.

In reality, homeowners in trouble, attempting to move on, were forced to have strangers trek through their home on a regular basis with little if any hope for actually selling. Buyers were forced to view homes that were not really available to purchase in a timely fashion. Listing agents were forced to list and hope that if a contact were submitted, the sale could actually be consummated.

Under the old system, once an actual contract for purchase was submitted, then it would be forwarded to the lender(s) for approval. You see, the lender had no knowledge the property was for sale prior to receiving the offer. Plays scripted in the sand during a pick up football game had a better chance of success.

The lender could take whatever time it wanted to approve or deny the sale. In reality, the process often took many months and in the end, most sales were not approved. Lenders would ignore tort law and attempt to alter the terms of listing agreements as well as contracts of sale. Using the same attitudes that created the collapse of the system, lenders ignored law and showed disdain for those in need.

In most cases, buyers could not wait endlessly for approval. Real estate agents could not continue to service listings that were not going to sell. Homeowners lost hope and the market slowed to a standstill.

If an approval was received from a lender, it usually was encumbered with unreasonably short deadlines. The buyers had contact their lenders obtain new loan approvals. If the loan terms had changed, new regulations required a waiting period for the buyers review before the buyer had to accept the terms. Title attorneys had to rush updated title searches, surveys or other lien searches in order to make sure the transaction closed before the approvals expired.

HAFA was created to provide a solution for homeowners who could not qualify for a permanent loan modification and could not afford to remain in their homes. HAFA provides a system for an orderly process for the short sale to be completed using standardized documents and enforceable deadlines. It should not be overlooked that it also provides a way for homeowners to use a deed-in-lieu of foreclosure solution if the short sale attempt is not successful.

To qualify for a HAFA short sale or deed-in-lieu:

  • the mortgage must be for a borrower’s principal residence;
  • the loan balance may not be more than $729,750;
  • the borrower must have incurred some hardship like a medical emergency or a drastic reduction in income;
  • the loan must have closed prior to Jan. 1, 2009;
  • first-mortgage payments (including property taxes, insurance and mandatory homeowners or condo fees) must be more than 31 percent of current gross household income.

For a deed-in-lieu arrangement, borrowers must also be able to deliver clear and marketable title to the home, free and clear of all liens or encumbrances and leave the home in “broom clean” condition. This may include resolving a home equity line or second mortgage.

Homeowners are given a minimum of 30 days to vacate the home from the date the short-sale agreement expires or the date of the deed-in-lieu agreement.

The lenders’ participation in HAFA is voluntary, not all loans will be eligible. All loans owned or guaranteed by Fannie Mae or Freddie Mac are eligible for HAFA. You can see if your loan is eligible by contacting your loan servicer (this is the company that receives your mortgage payment) or by going to http://makinghomeaffordable.gov, which also lists the required documents.

The often overlooked major change HAFA brings to the industry is that it mandates the use of standardized documents and strict time frames. In the past, lenders had to deal with standardized forms, documents created by real estate agents, hybrids of forms used in the past and paperwork that had not been reviewed or approved by real estate attorneys or state boards. These new documents are available on-line and anyone can download them to use from http://https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html.

In a simple overview, after a borrower has applied for a loan modification and not qualified, they can seek relief using the Request for Modification and Affidavit RMA form. The lender has 30 days to respond to the request. If the lender approves, it will offer the homeowner a standard short-sale agreement setting forth the minimum sales proceeds that the lender will accept, taking into account closing costs, real estate commissions and expenses common in the local market. Borrowers have 14 days to accept or reject the short-sale agreement. If a borrower accepts, the home can be listed with a real estate agent for a minimum of 120 days. The time frame can be extended to a full year if necessary.

HAFA sets clear time tables that enable the marketing and sale of the home in an orderly fashion. Sellers do not have to use a Ouija board to come up with a list price. Agents will actually be paid the amount stated in the listing agreement. Buyers have a distinct timetable that allows them to actually plan their move.

The timetable becomes clear:

  • Homeowners have three days from receiving a ratified contract to notify their lender and request short-sale approval.
  • The lender has 10 days to confirm that the offer meets the short-sale agreement terms and conditions.
  • If approved, the new buyer will have a minimum of 45 days to accomplish all the steps necessary to go to settlement.
  • The new buyer will also need to agree not to sell the home for 90 days after settlement.
Some other major HAFA improvements include participating lenders’ waiver of their right to pursue deficiency judgments against borrowers. This means that if a homeowner is able to obtain and comply with the agreement, one the sale is consummated they will be able to move on with their lives without waiting for the large debt to come calling. It will be forgiven, forgotten and wiped out… . Under the Mortgage Forgiveness Debt Relief Act, the IRS will not treat this forgiveness as taxable income to the homeowner.
The last thing to note is HAFA prohibits participating lenders from completing the foreclosure process when HAFA deadlines are pending. (They can proceed with the foreclosure process but cannot complete it. Lenders demanded that they be in position to act quickly if the process fails) Still homeowners can now enjoy the peace of mind that while the process is pending, they will not come home one night to find their belongings on the curb and new locks on the door as long as they are dealing with a participating HAFA lender.
It remains to be seen if this program will actually work, but finally there is a glimmer of light at the end of the tunnel. The very fact that it exists is an indication that someone somewhere is paying attention. If you would like to discuss your situation, we are familiar with the program and would welcome the opportunity to assist you. Give us a call at 301-509-5111.

Tudela MacArthur

ReMax Realty Centre

serving Maryland and the District of Columbia

Open season on Lender’s Pockets?

Can it be possible?

The government has opened the door for uncontrolled bilking of Mortgage Companies?

 

I will be the first person to admit that I don’t understand all the changes that have occurred in the mortgage industry. I go to classes. I listen. It will take awhile for it all to sink in. It is no wonder that the number one thing buyers don’t understand is the lending process.

I do this for a living and can’t get my mind around it anymore.

From what I understand, the Good Faith Estimate that lenders must provide potential borrowers has gone from non-functional to convoluted and non-functional. The old GFE did not provide all the data needed to compare loans in an apple to apple fashion. The new one does a better job, it just does it in a language that no one other than a regulator understands.

OK, I get that much. Now, in order to give a GFE, the lender has to have 6 pieces of information. If he does not have that information, he can send out a SWAG (sophisticated wild ass guess) regarding the loan. Lots of lenders are using the old GFE to send out the non-binding information.

Here’s a cracker jack idea. We won’t have the consumer sign the new GFE!

Well, that certainly adds a certain amount of “what were they thinking” to the equation. So, let’s just move on. You see, the GFE must be pretty close to the new HUD-1. Now, it really gets interesting. The feds have set up tolerances that leave minute variances to exist between the GFE and new HUD-1. If they are off by more than the allowance…can I get a little drum roll?

…thank you

the Lender has to pay the difference. So, I’m thinking…what pea brain thought this system was fair and would correct all that ills the system. There is so much wrong, they can’t make it right.

Here is a hypothetical that keeps all lenders up at night. The owner of a title company discovers that he or she is short cash or maybe, they just want to retire. They look at the books and see they have 100 transactions closing at the end of the month. They think…hmmmmm…and decide to bump their fees by $500 dollars for each transaction. They add it on the brand spanking new HUD-1 for each closing.

The buyers show up and say, that was not on my GFE, I am not paying it. The lender scrambles through his paperwork and says but that is not what you told me. The title folks shrug their shoulders. Oh, then they collect the extra $500 from the lender on each transaction. When the proverbial poop hits the fan, they will be in Bermuda, sucking down a pina colada with $50,000 in their pocket. Sound crazy, well that is the way the new regulations read.

Sometimes the government is so damn dumb it just boggles my mind.