Nevada Real Estate >> Las Vegas Real Estate Specialist: Jeff Belonger-The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc)

Realtors should know basics about Mortgages in New Jersey– Especially FHA Mortgages

 

When it comes to realtors giving in depth advice about mortgages, it does crawl under my skin. Some of you know this, and some of you disagree with me.  Some realtors think a realtor should go as far as to pre-qualify a buyer. One reason from a realtor was that he could do it better than many of the loan officers. Sure, there are bad loan officers and good loan officers. I can make the same statement in regards to realtors, and in most other professions. But lets put all of that aside, because that is not what this post is about.

So why do I bring this up then? I will say that a realtor needs to know the basics when it comes to mortgages. They are suppose to be knowledgeable when showing homes, right? How does one usually buy a home?  Usually with a mortgage. And in today’s mortgage arena, there are really only four types of mortgages.

Conventional Loans – easiest of all appraisals and what is required.

FHA Loans – appraisal issues are not as strict as the rumors that say FHA is harsh. Maybe back in the day, prior to 2002. The VC sheet was even dropped from the appraisal almost a decade ago. Broken doors, cracked windows, cracks in the foundation,  chipping and pealing paint, and mold are usually the biggies.

USDA Loans – people need to be aware that not only does the lender underwrite the appraisal, but that the USDA needs to review the appraisal.

VA Loans – in between conventional and FHA requirements.

 

Each mortgage is different, and some are more lenient than others when it comes to appraisals. But here is the part that a realtor should focus on. Many sellers and listing agents want at least a pre-qualification letter from the buyers mortgage company. It makes total sense and is not unreasonable. The pre-qual letter should state what kind of mortgage it is, right? Well, if my pre-qualification letter says that the buyer has been pre-qualified up to x,y,z; with a FHA mortgage, then that means that buyer is getting a FHA mortgage.

Here is the dilemma or issue at hand. I know of a buyer getting a home with a FHA mortgage and the sales agreement was written as an ”as is” purchase. Which means that the seller will do no repairs. Well, the house is not only a mess, but several things are wrong with it. The main issue is that it has mold, and they knew about this because there was a previous buyer, in which that transaction fell a part. Secondly, there are like eight electrical outlets that needs covering and an electrical box. Anyone with little experience regarding FHA mortgages would know that this would need to be addressed and fixed prior to settlement. Regarding the mold issue, the realtor said FHA doesn’t get worried about mold issues. The other issue is that the buyer is using a friend as their realtor who really only does commercial deals. So you can see why that realtor didn’t even pick up on these “red flags”, even though the house is being sold “as is”.

Here is a picture showing you one of the outlets. You tell me what you think.

 

 

 

As you can see, not only does the box have to be covered, but that the wires are exposed.

Conclusion : Realtors should know the basics about mortgages, especially FHA mortgages, since this is about 40% of all mortgages in today’s real estate transactions. In some areas, FHA mortgages are even 50% or higher in specific markets.

Let’s try to look at this another way. Would a buyer really want to buy the property if it has some major issues? Shouldn’t a realtor be focused on the condition of the property prior to listing it? If the realtor sees some potential “red flags”, and they aren’t sure, wouldn’t it be wise to call a few lenders to find out. As a sales person, shouldn’t that person know his or her product? If selling a home, not only knowing the condition of the home, but understanding the basic appraisal requirements for the basic mortgages?  Just some food for thought. Because I have always said, “the stupid question is the question not asked if it has been thought about.”

So in my honest opinion, realtors should know the prime basics of mortgages in New Jersey. The primary focus should be on appraisal issues.

 

Mortgage 101 in New Jersey – Getting to know the borrower’s wants and needs

In today’s delicate world of mortgages in New Jersey and any where else, getting a mortgage not only takes understanding, but patience. I am still finding many loan officers trying to fit that round peg into that square hole. Let me explain….

I currently have a client whose realtor got him to talk to her loan officer. This loan officer has my borrower pre-qualifed for about $35,000 more than I do. How can there be such a difference?

Before I get into the differences, let’s try and establish a pattern of questions that should be talked about, when a loan officer interviews a borrower.

 

• What mortgage payment in New Jersey would you feel comfortable with, to include your property taxes and homeowners insurance. Please give me an honest and realistic amount that you would not want to exceed.
• Secondly, what areas would you prefer to live in. This is very important, because it comes down to the different property tax amounts. Depending on why you would want to live in that town or neighborhood, would help determine your monthly mortgage payment because of the property taxes.
• My next question would be the type of property that you would want to purchase. Whether it would be a single family dwelling, a townhouse, a condo, etc. This helps me determine your payment as well, because there could be association dues or PUD fees based on the type of property and location.

In my opinion, I consider these 3 questions to be the most important that should be asked in the beginning, besides their name, credit scores, credit history, and income information. I actually get to those sets of questions next.

 

So, with that addressed now, let’s get back to my story.

My borrower wants to live in one of two places, because one of his main focuses is to be in a good school system. Keep in mind, they have 1 child at 8, another at 1, and one on the way. How do I know all of this? I got to know my borrower.

Now, the areas that they are interested in, the property taxes run about $6,000 a year on $180,000 properties. This other loan officer has them pre-qualified at $200,000, but using property taxes of $5,200. To be realistic, if buying a $200,000 home, the property taxes average around $7,000 a year. As you can see, this could become a huge issue for the borrower when shopping for a home in their respective areas, to later find out that they don’t qualify based on higher taxes. But it gets better.

In my very first question, I asked what mortgage payment that he would feel comfortable with. If I used the $200,000 property, even at the unrealistic property taxes of $5,200, he would be about $117 over his comfort zone regarding the mortgage payment. With the correct property taxes, not only does he not qualify for a mortgage, but his monthly nut would now be about $267 more than what he would be comfortable with.

 

Conclusion : In my 18+ years in the mortgage business, even after the government tightening down on loan officers with their licensing requirements since the beginning of 2011, I keep seeing these basics get over-looked more than they should.  It shouldn’t be about who can pass a test, even though the test itself is only about 30% mortgages directly. But about asking the proper questions and preparing the borrower.

I have a borrower right now who has a 617 credit score and that their current loan officer is telling them that they need a 620. Once they get that 620, they can close. Settlement was suppose to be June 30th and he keeps saying it will be soon. yet when I reviewed their current credit, it doesn’t mean the credit guidelines. I wrote about this example that happens more than it should. Please read - Your credit score is more than just a number -

Hey, it’s a dog-eat-dog world out there. I know it’s easy to trust someone when they say such words as : “trust me”, “no problem”, I promise”, “I guarantee”, etc.  Who do you trust?  Get to know your loan officer, listen to how they talk, and how confident they sound. Not just the sales words that one might use. I call these words The Red Flags of mortgages.   If you listen close enough, you can sometimes hear someone contradict themselves. Just food for thought.

 

 

 

Shopping for Mortgages & Shopping for Interest Rates Smartly

You now want to buy a home and need a mortgage. You would think it would be easy to call around to mortgage companies and ask, “What is today’s interest rate”. Sounds simple, right?  Au contraire mon frere…. On the contrary.

There are a few misconceptions that many have when shopping for interest rates.

• That all lenders have one basic rate to offer

• That big lenders or big banks have better rates than smaller lenders and can give discounts

• That referrals will get you a better interest rate

 

 

All lenders have many different types of interest rates, which is dependent on many different factors. The end result, all rates should be relatively close, as long as you aren’t being deceived or that your rate will be baited and switched. Why should interest rates be the same or very close? Because we all get the rates from basically the same place, which are dictated by investors on Wall Street.

Larger Banks/lenders vs smaller lenders – I just heard from a potential client shopping for a mortgage that her realtor told her that BofA can give her discounts on the rates. First off, this coming from a realtor that is speculating. This is a blanket statement, because again, way too many factors involved when determining interest rates.  Food for thought… Just because a bank or lender might be servicing your loan from the get go, doesn’t mean that is how they can offer lower rates. In reality, even that bank or lender that is servicing your loan, has sold bits and pieces of it to other investors. Big Bank A might own 70 percent of your loan, even though they are servicing it, yet two other investors might own the rest of the loan. Hence why some foreclosures were becoming difficult at times, trying to determine who owned how much of the primary mortgage.

When it comes to getting a referral from a friend, co-worker, realtor, etc; one just can’t assume that all will go well and that you will get the best deal.  I have three new stories just from the last several weeks that would make you cringe. Story A – My sister referred me to a friend of hers after hearing of her most recent mortgage story. Back in December, this couple tried refinancing and was promised an interest rate of 4.5 percent. After about 2 months, they finally found out that this loan officer never locked in their interest rate. And this was a referral from a friend. Just recently, they got another referral from someone at their church. I happened to get the call 3 days later and after reviewing the different cost sheets, I was about $5,500 more in total costs. But wait, the other loan officer was very misleading in what they estimated. This person didn’t calculate their 30 days of interest in the pay off, was $100 lower per month on the property taxes, only escrowed 3 months worth of taxes when I estimated 5 months, and two other items. All of these items aren’t lender related, but 3rd party estimates. After it was all said and done, I was about $48 off. Yet this person had an interest rate that was 1/8 percent lower in me. And guess what, there was one important question that wasn’t asked by the other loan officer, in which carried a pricing penalty from any lender/bank for this particular loan.

 

 

Many different factors involved when shopping for a mortgage or shopping for an interest rate

Goals – What are your goals, for the next 3, 5, 7, and 10 years. This could help a good loan officer determine if you should pay points or not, or what mortgage program to put you into.

Credit scores- Your credit scores are a huge factor when it comes to determining your interest rate and or the penalties because of your credit scores, aka fico scores. – Understanding credit scores – Read the series at the bottom

Interest Rate Lock-In Period- Such an important detail that is usually not mentioned to borrowers when shopping for that all almighty interest rate. How long is my interest rate good for and when can I lock it in should be talked about. I once lost a deal to another loan officer who was beating me out by 1/8% and $500, but found out that he couldn’t lock his rate in until the appraisal came back. This could be a difference of 3 to 7 days, and interest rates could get worse. Besides, the loan officer in a few days could just raise the rate an 1/8% and say that rates got worse, but did they? Key Point – You need to shop on the same day, because rates change daily, sometimes twice in one day.

Loan Amount – Believe it or not, the size of the loan amount will have some impact on your interest rate. All lenders have a basic profit margin that needs to be met on each loan. The lower the loan amount, the more points it may require or a higher rate that pays more premium back to the lender.

Size of down payment – This holds more true for conventional loans, because Fannie Mae and Freddie Mac have pricing hits depending on how much you put down and what your credit scores are. Please read : Conventional pricing hits

 

 

Conclusion – One size does not fit all. It might seem simple, like when buying a new television, as long as you know the model that you want. Then all you have to do is pick the 3 nearest stores and see who has the lowest price. As you can see, when shopping for an interest rate, there is a lot more involved. Something that I have witnessed 3 times in the last 2 weeks are borrowers that weren’t locked into their rate and then rates changed on them. The moral to this story is that any loan officer can bait you with a little better rate at first, if they aren’t going to lock you in at time of shopping or mortgage application. 

Lastly, just because one has advertised a low rate, doesn’t mean it’s true. All of the factors that I mentioned above need to be found out before offering any such rate.

On another note, I have included some very important articles below that should help you better understand the mortgage shopping process.

 

For more info regarding shopping for interest rates and shopping for mortgages, please read :

• I want the same interest rate my friend got

• Locking in interest rates – Knowing the facts

• Low interest rates published on the internet

• All Mortgages should cost the same – by : Ken Cook

• Finding the best interest rate

• Mortgage Advertising can be very deceptive

• The myths about Zero point mortgages vs paying points

• Shopping for mortgages

 

 

 

Mortgage Market Report - Interest Rates hit historic low for 2011

As of yesterday, mortgage interest rates were hitting historic lows for 2011. Today was the key focal point if rates were to continue to go lower based on non-farm payrolls and on unemployment.  As of this morning, the news is reporting that non-farm payrolls only increased by 54,000 in May, significantly less than 150,000 increase that the economists had been expecting. Regarding the private sector, private employers only added 83,000, instead of the 180,000 that was anticipated. And unemployment rose from 9.0% to 9.1% the month prior.

Depending on your credit scores, the type of mortgage, your down payment, and your loan amount, interest rates yesterday were from 4.375% to 4.875%. As of right now, the FNMA 30 year 4.0% coupon is up 41 bps at $101.22 and the US 10 y T-note is up 59 bps at $101.38.

 

 

 

Summary : What does this all mean for today?  That interest rates should be getting even better today. Another reason for the MBS’s and bonds getting better is because it looks more attractive for those countries overseas such as China, who look for good investments.

For those of us that keep track of this information, I had been advising clients to wait until today’s news, even though rates were the best that we had seen for 2011.  I will be locking in several borrowers today that will be closing in the next 10 to 30 days. Yes, there are a few indicators that could even drop rates a little more for next week. But in my experience, no matter how one might tend to read the markets and those indicators, just a small hiccup could reverse all of these gains. And what goes down, will go up, but ‘when‘ is the question. Some so-called experts will tell you to float cautiously, but with interest rates literally dropping about 3/8 of a percent just in the last two weeks, it’s my opinion that it would be a huge gamble to lose these excellent gains.

 

 

For more news like this, you can always go to the www.fhaloansfhamortgages.com 

 

 

 

What is the best fit when comparing FHA loans and conventional loans?

 

Based on my opinion over the years, the loan officer should focus on your credit scores and down payment that you can afford, when comparing mortgage programs. But keep in mind, the main focus should be what you can afford regarding your monthly mortgage payment. Overall, one needs to understand how mortgage insurance works and the guidelines for mortgage insurance in order to put you into the best mortgage program for your situation.

FHA loans in many areas make up about 35 percent to 50  percent of all mortgages used in the last 12 months for many reasons. And there are still some FHA rumors that state FHA loans are more expensive because of the upfront mortgage insurance or because of the new FHA monthly mortgage insurance changes that just took place April 18th, 2011, hence why I wanted to share this comparison.

 

 

No matter what mortgage you choose, you don’t need 700 credit scores or 20 percent down.  But you do need to understand the differences for many reason, hence why I want to show this comparison between FHA loans and Conventional loans.

The example below is based on a $250,000 purchase price with 5 percent down. One reason why conventional rates are a little higher and more costly in this scenario as in FHA rates is because Fannie Mae and Freddie Mac have added penalties per se. If you are putting down less than 30% and or your credit score is less than 720, certain fee penalties would apply to you, which would increase your rate and or points.  The credit score that I am going to use is 699 and I will still show in this example that FHA loans are cheaper (depending on your goals), even with 5 percent down.

***And keep in mind, some lenders have penalties on FHA mortgages with credit scores under 640 or can’t do them period.  And beware of those that promise you a mortgage with scores under 620. It can happen, but they aren’t as easy as advertised and are more expensive.***

 

Disclaimer : These rates are examples of today’s pricing with the same lender fees, and the spread shown in the example is the same profit margin for both sides. The conventional rate also includes the penalty for the 699 credit score, hence why the interest rate is much higher.

 

One main fact is that you will be adding $2,375 onto your principal balance if you did the FHA mortgage because of the FHA one-time mortgage insurance premium.  But as you can see, in 5 years, the principal balance is only off by $571.

Simple math. You are saving $69 a month and technically put $3,569 into your pocket in the first 5 years..  This is why you need to know your short and long term goals, and to have a budget in mind, prior to buying a home.  To learn more about this, please read : How much can I afford.

Another thought?  You still need to be approved by the mortgage insurance company regarding your conventional loan. And yes, there are other types of mortgage insurance programs that one could qualify for, but they usually require higher credit scores.  Also, if you wanted to put less down on the conventional loan, you would need higher credit scores. With a FHA loan, the guidelines state that you can put 3 1/2 percent down with a credit score of 580. But again, it’s up to the lender and their overlays.

 

FHA Myth – Some people, including loan officers, without doing the math, will say that FHA loans are more expensive because of the Upfront Mortgage Insurance. Because in this scenario, you are adding $2,375 to the FHA loan and because of the new monthly mortgage insurance change. This kind of mortgage myth needs to be squashed on all levels. It starts with the borrower’s goals.

 

 

There has been a lot of talk about QRM, 20 percent down, and much more. For the purpose of this post, let's forget about QRM, politics, what types of mortgages this will affect, and just keep this simple. More skin in the game for borrowers is the issue. Yes or No.

I have been wanting to talk about this for a few months, but I was inspired after reading this post by Bryan Robertson. ~ Why is NAR fighting the 20% rule in QRM? ~ Regarding Bryan's post, the one thing I do agree with is that home ownership is not a right, but a privilege. And that some lending guidelines were too loose.

I am wondering if we can agree on two things. Can we all say that the economy is not as good as it once was prior to 2006? And can we say that the economy is dependent on the real estate market by over 20 percent?

Three of the biggest arguments that have been floating around regarding the mortgage mess and our economy.....

1.)  The lenders were too greedy with some of their mortgage programs, such as 100 percent no doc and stated doc loans.

2.)  Little skin in the game caused the mortgage meltdown.

3.)  Loss of jobs, loss of income.

 

 

 

One main issue that bothers me profusely, the reasons why people choose to walk away from their homes, because they were upside down on their homes, upside down on their mortgages. And so many state the main reason for this was because they should have put more down as a down payment, because home values dropped. Here is a comment that just scares me...

"The more skin in the game, the more likely one will fight extra hard to protect their investment. There's no two ways around it."

Then please explain the hundreds of thousands of strategic defaults that have plagued the foreclosure numbers. I have spoken to a dozen or so myself that had no problem financially in paying their mortgage payments and other debts. But just because they were upside down on their home, they walked away. Can I ask one simple question? Why? What was the main reason for buying that home in the first place? This will be another blog post topic in a few days.

Read : More than 28% of homeowners are underwater

 

You want shocking input?? Kenneth R. Harney wrote Who's most likely to walk away from their

 

 

 

~ Pros of 20 percent down or more ~

• Security - More skin in the game makes for a better buyer, homeowner. Me? False hope that it will keep more people in their homes, that they are better buyers. 

Quick Rebuttal - Define better buyer. FHA has been around since 1934, allowing for 2% to 3% down payments. You also have VA loans and USDA loans that allow for 100 percent financing. All three of these types of mortgages have been performing well up until 2006, when the whole mortgage meltdown began. One can say that subprime loans had a lot to do with this. Loan officers putting borrowers into loans with higher rates or worse subprime program types, just because it was easier than a FHA loan, making it easier for the loan officer, but worse for the borrower. Sorry people, but this is a fact that I have witnessed first hand and even asked certain loan officers during that borrowers mortgage process.

 

~ Cons of 20 percent down or more ~

• Stripping away Cash, Savings, Reserves - If I had a choice of putting down 3.5 percent or 5 percent over 20 percent, I would do the lesser. Why? Unless I had a million dollars in the bank, it allows me to have access to more cash on hand for emergencies. And I have shown in prior blog posts, the differences with 5% down compared to 20% down. Besides, your house is no longer an ATM. It's much harder to get cash out once you put it down.
  

Quick Rebuttal - The buyer would just have to save more to have cash left over, having reserves.

Negative Impact of more down - The borrower might have nothing left over for emergencies such as a loss of job, a death in the family, or even to fix important issues regarding the house.

• Economy gets even worse - Would more jobs be lost if the housing economy dried up? In my opinion, 110% yes. Anything from new construction, to remodeling homes, to home repair stores, and those that make such materials for everything just mentioned. Kind of like the food chain.

Quick Rebuttal - I honestly can't think of one, can you?

 

 

 

How long do you think it would take for someone in today's economy to save 10 percent, or even 20 percent. Here are some figures compiled by specific groups and independent companies. See chart :

 

 

Let's see, it could take the average person 9 years just to save 10 percent down. What so many fail to realize, that we are talking about the average person. There are so many different factors that play into the role of saving money. 

• Does a family only have one household income? How many in that household?
  

• The cost of living is higher than it has been in recent years and decades. Just look at the food prices and or gas prices, which in many cases, out-weigh what one makes on a monthly basis.

• Unknown debts that the average person does not always have, such as student loans, taking care of their parents, medical issues, etc, etc.
  

 

I have heard and seen most of it regarding these reasons in my 18 years in the mortgage business. It's been stated by several groups and those doing surveys and studies, that "High down payment and equity requirements will not have meaningful impact on default rates."  

Let's look at a $250,000 purchase price. If I put 5% down, my mortgage would be $237,500 and if I put 20% down, my mortgage would be $200,000. Do you know what the difference in mortgage payment would be? $201.00 a month. Yes, there will be mortgage insurance, depending on the type of loan program. Mortgage Insurance can be a confusing topic and can also be written off for now. Read : Mortgage Insurance

But let's say your mortgage insurance is an extra $180 a month. If you out 20% down, your total savings is $381.00 a month. But wait, that is an extra $37,500 out of pocket. Ouch... That is about 8 years of saved monies. As you can see, buying a home takes careful planning and consideration. When is it a good time to buy a home?

 

 

 

 

We need to compare Apples to Apples - People keep comparing today to the 1970's and 1980's when their parents were able to save and put 20 percent down. Many say that it was just as hard back then as it is now to save. I disagree because of several different factors.

By forcing higher down payments, would this not penalize the responsible borrower? Which would make home ownership more expensive or out of reach to millions?

In my opinion, I consider Cash is king and a necessity to survive in today's economy. Since many are screaming about at least making it 10 percent down, here is an example of 3.5% down vs 10% down.

What are your thoughts and opinions? For those reading this, even though I am strongly against making more down a requirement, I still always try to respectfully dissect both sides with pertinent information so I can make a sound decision.

Adam Cohn wrote this post (I love stats and facts - research):

QRM would have cut out 39% of homebuyers in 2010: CoreLogic

 

 

Understand the facts before screaming for such ludicrous changes that could kill the housing market. I do believe in tweaking some of the mortgage guidelines. Such as :

• Stronger debt ratios

• Required reserves

 

Here are some scary facts and not just opinions.

Understand the types of people that would truly walk away from their homes.

 

Maybe the economy would rebound better if the mortgage servicers improved. Recovery depends on mortgage servicers?

Maybe higher escrows withheld on jumbo loans? Fed rules on jumbo escrow requirements

 

Call to Action - If you believe in my thought process, print or e-mail this and send it to your Congress person, to other realtors, agencies....

 

One of my calls to action that I wrote about in June of 2009 :

Call to Action - We must fix the real estate market ourselves !!!

 

 

Jeff's cliff notes (remember those?  In my opinion, here are 3 excellent comments out of the 240 + from Bryan Robertson's post mentioned above. Keeping in mind that I have only read about 60 of the comments and not in any order)

Karen Hunt - comment # 167 - Unemployment, tax structure, and lax banking guidelines.

Brian Hoffman - comment # 169 - If forced to put 20% down only, economy would crash.

Dave Jerierski - comment #203 - 20% doesn't guarantee loan payments.

 

 

I wrote about tougher guidelines about a week ago.

Realtors can't sell!!! - Because of Tight Mortgage Guidelines?

Are mortgage guidelines actually tougher? I don't really think so. I think it begins with the loan officer properly educating both the consumer and realtor, and setting expectations to a certain level before one sets out to buy a home. How many of the loans that didn't closed in the last 12 months were probably do to loan officer errors not understanding credit, credit scores, or their lending guidelines.... and not just because the person didn't qualify, which should have been mentioned previous to the agreement of sale.

 

"Fight or argue with facts and not just your heart on your sleeve."

 

Understanding Mortgage Insurance and the different types

The keys to home ownership can be tricky and confusing, unless handled by a true professional loan officer. You’ll sometimes hear loan officers and or realtors talk about one mortgage program over the other, telling you how great it is or that the monthly mortgage insurance is less than the other program. But wait, one main ingredient is still missing in this whole equation. What are the credit scores, aka fico scores. Why is this important?

When comparing a conventional loan to any other type of mortgage loan, many of the MI companies (mortgage insurance) will have certain restrictions when it comes to credit scores, the percentage of the down payment, and area restrictions.

 

Let’s quickly look at the four major types of mortgages.

Conventional Loans – If you have less than 20 percent down, you are required to have some sort of mortgage insurance. The standard mortgage insurance is called monthly mortgage insurance. There are such programs called LPMI (Lender Paid Mortgage Insurance) and BPMI (Borrower Paid Mortgage Insurance). ps.. Mortgage Insurance doesn't always fall off when you hit 78% LTV (loan-to-value). Specific guidelines must be met still.

FHA loans – You have upfront mortgage insurance and monthly mortgage insurance. No matter if you have 20 percent or more down, you are still required to have monthly mortgage insurance. Depending on your credit scores, even with 20 percent down, a FHA loan still might be your better option. FHA raised it’s mortgage insurance as of April 18th,2011. New FHA mortgage insurance   – Reminder – If you do put 20 percent down, the mortgage insurance falls off in 5 years.

USDA Loans – As it stands, there is no monthly mortgage insurance. But this will change come October 1st, 2011. New USDA monthly mortgage insurance.

VA Loans – There is no monthly mortgage insurance.

Summary of mortgage programs : Three of the major types of mortgages mentioned above, FHA loans, USDA loans, and VA loans, all have some sort of upfront mortgage insurance. Each one has a different name for it.

 

Here is a comment that I just heard the other day.

“The FHA Premium Rate Increase Makes conventional MI a Better Option for Many Borrowers.”

 

 

 

Do you feel that today's mortgage gudelines are hurting realtors from selling more homes?

Do you think it could be the buyer not being in a good position?

 

People, I get the fact that lending guidelines have become more strict over the last 12 months. I think I have seen it all in the 18 + years that I have been in the mortgage business. But in my honest opinion, I think the biggest hurdle has been the credit score requirements. But is it a challenge that can be over come in a short time period? Read more for my answer/opinion on this topic.

 

 

 

What prompted me to write about this was this article by Christine Ricciardi - Real Estate agents want subprime alternative for too-strict underwriting - Here are a few statements from the article.

 

I wish I could have interviewed all of these real estate agents. My question would be, "How are these down payment requirements too stringent?"  "Could you please give me examples."

Let's review some facts. You can still get a FHA loan with 3.5 percent down. You also have USDA loans and VA loans which allow for for 100% financing. Sure, there are restrictions for these two types, but it is available. In regards to conventional loans, you can still do 97 percent financing, but the credit score requirements are extremely higher, which is why FHA would work out for more if it was a down payment issue.

Don't get me wrong, I am not one of these "must have skin in the game" type of advocates. FHA loans have been around since 1934 and for the most part, the down payment requirements were 2.25 percent down. So it's up to 3.5 percent now. Yes, depending on the purchase price, that could be another $1,500 to $4,500. But we aren't talking about $10,000 to $20,000 more. People need to stop writing that now is a great time to buy. And buyers need to stop thinking that this is the best time. It's always a great time to buy, when you are in a good position to buy.  Read : When is it a good time to buy a house?

 

 

Ouch... I could write a whole book on this statement. "needing a High quality subprime mortgage program" Let's revisit history. In the late 90's, the government forced Fannie Mae and Freddie Mac to make housing more affordable. This is when they came out with 100 percent financing and better yet, when they allowed these same buyers to have back-end ratios of 55 percent. My common sense says that you are just looking for trouble with this equation. We are talking about 55 percent before taxes being taken out. The borrower's gross income. Then the subprime market grew leading into 2000 to 2005, to where these investors would allow 50 to 55 percent one-time ratios, which would be a part of your front-end.

Quick education. Your front-end ratio is your principal & interest, plus taxes and homeowners insurance divided by your gross monthly income. Your back end ratio is the same formula, but adding on all monthly reoccurring debt, such as car payments, credit cards, bank loans, student loans, etc, etc.

The end result was that many investors got greedy and loosened the subprime guidelines. I knew loan officers that would put a decent borrower into a subprime loan because it was easier and quicker than getting them a FHA loan. Yet the FHA loan would have been much cheaper.

My problem with this statement? People making blanket statements, but not offering up solutions. Give me a few good examples of what the "subprime mortgage" should allow.  I hated when people were calling FHA loans the new subprime after the demise of the subprime industry. But from what I know after 18 years, you really can't get much better than an FHA loan that still has decent guidelines than what a subprime mortgage would allow with less down. What could be the main argument? Credit scores....

 

 

 

The BAD Credit score argument

I don't want to point the finger at just realtors, because I think many loan officers are just to blame when it comes to credit scores. In my opinion, it's called, "setting your clients expectations to a certain level". We all want to help now. But many mislead or make it sound easy because they might have a 600 credit score program, but don't fully understand it. In my opinion, people should not be waking up one day and say, "I want to buy a house tomorrow". It should take some careful planning and consideration. In reality, people shouldn't be buying a home if their credit and finances are screwed up, especially in the last 12 months. Yes, I understand that things can happen unexpectedly.

Let's take a look at the credit scores. Many lenders want 640 or higher. Some of us can still do down to 620 or even 600. I get that there are some people with 590 credit scores who have decent credit, that would be in the category of 'less than perfect credit', but that they are still a good risk. I just closed on a VA loan in which the borrower had 592 credit scores in December of 2010. When they went to closing, I had their credit scores up to 638. I have another borrower who had a mid score of 598 in January of this year and as of now, their mid score is a 645.

 

 

Conclusion : I am hearing many complain that it's nearly impossible to sell homes because the mortgage guideliness are way too strict.  Yes, you have issues when it comes to conventional loans that will only allow for a 45 percent back-end ratio if the credit score is a 720 or above. Or a back-end ratio of 41 percent for those with a credit score from 680 to 719. All of this is because of the MI companies, the mortgage insurance companies. And yes, you can do lender paid MI and such. But with a FHA loan, you don't have to worry about all of these differences. But given a few of my examples above, you can easily see that if a buyer speaks to a very qualified loan officer, they should be able to buy in 6 months. Sorry, but the mentality with so many realtors and buyers is that they must buy NOW.... and that is not the case. Waiting 3 to 6 months to get their stuff in order is not going to kill anyone. Besides, as I mentioned, buying a home should not be a split second thought, that you get up and do it now. As a buyer, if you know you don't have the best credit now, get with a true professional to help you get to that point. Articles such as the one I mentioned above, makes it sound like it's nearly impossible and because of it, it's hurting the economy. Yes, the economy needs the housing market. But there are way too many tracks that lead to the main station. One needs to truly understand the ins and outs of mortgages, and not just what they hear from each other, aka, water cooler chit chat. Just think about it...

 

UPDATE as of 5-14-11 2:15 pm - I just did some more reading and apparently some of us seem to be on the same page or have some of the same thoughts. The bottom line, many people want it now, and not to work for it. Two excellent reads below... please take the time to read these.

George Souto wrote : I want it now!!

Lenn Harley wrote : Mortgage loan denied!!!  What???  I have excellent credit!! What's going on?

 

 

 

There comes some responsibility and understanding of the mortgage process when buying a new home. Some think that just because you are approved for a mortgage in New Jersey, you can sit back and wait for the closing to happen now. There are many things a buyer must be careful of, even after they have been approved for a mortgage.  This isn’t always explained by the loan officer, hence why I wanted to give a list of items.

 

 

 

 

Be prepared for the worse !!!! 

Not sure if many of you know, but there is a possible government shutdown looming. This would affect FHA loans and possibly other mortgages. There are still talks on Capital Hill between the Democrats and the Republicans, if not solved, could shut down many parts of the government come Friday April 7th. The government funding bill expires on Friday at midnight.

Be aware this could affect the ability to get transcripts for IRS loans as well as more importantly, FHA case numbers. Not only could this delay the lender in obtaining a FHA case number, but FHA is increasing the annual mortgage insurance which goes into effect on April 18th, 2011.  ~ FHA monthly mortgage insurance changes April 2011 ~

 

 

The ending result is that this could affect thousands of home buyers if this issue is not resolved. Especially because the usage of FHA loans have increased over the years. New mortgage numbers state that 35 percent of all mortgages are FHA loans. Many don’t realize that sometimes a buyer might need a few days before a specific deadline because the FHA case number could go into a “holds tracking” status. There are various reasons why this might happen., but the fact remaining, that file is placed on hold. So if a buyer is applying on April 17th and the result is a “holds tracking” status, and it takes 2 days for the case number to clear, that borrower would miss the deadline for the new change. This would result in a higher mortgage payment.

On another note, some of us are still trying to see if this will affect USDA loans also. From one source, I am told that it would shut down USDA loans, which means the USDA won't be able to underwrite the loans.  I am waiting for some USDA officials to get back to me and I will update this post accordingly, unless someone knows otherwise.

 

Summary : Overall, this could affect so many other types of jobs. It still boggles my mind that the government is doing many things last minute. For a few years we had the national flood insurance issues that would come down to the last minute and so much more. People need to be aware of this, because this could affect thousands of home buyers and or delay closings, especially those applying for FHA loans.

On a side note, did you know that this would affect the military also? What about those military personnel with families in the United States who aren't working, depending on their spouses military checks. Again, why must we always wait until the last minute. Why can't we as a powerful nation, how some sort of emergency back up plan, for those that can't seem to agree on Capital Hill.

Here is an article by Kimberly Schwandt describing what jobs could be effected.  ~ Administration paints picture of possible government shutdown ~

 

Key Reminder : Some lenders might take more risks than others, in what they will originate & close if the government shuts down.

 

MARK LAPP wrote this post today, 4/8/11 and gave some more details if the government shits down... what it will do to lending...

• The affect of a Government shutdown

 

 

 

We hear so much talk about buyers being pre-qualified or pre-approved, but what about pre-qualifying the house that is being sold.

I was inspired to write this post after reading a post and its comments that was written by Valerie Osterhoudt. ~ FHA guidelines are making it hard to keep deals together ~ She talks about a home that she is trying to sell and just came across another change to FHA loans because the buyer was qualified with a FHA loan. The key point in this conversation was that "everything was going smoothly until ...."  Until the loan was being processed after the appraisal was done. Read the article that Valerie wrote in order to get more details. (ps - The issue mentioned in the article is also an issue for USDA loans - Just food for thought)

 

What I wanted to bring up is that some of these issues can be addressed prior to a buyer accepting an offer. Not everyone can remember every detail when it comes to what is allowed and not allowed, no matter what type of financing the buyer is obtaining. Let's take a look :

 

Why can this be such a great idea?

You could get a true expert that would know many of the lending guidelines when it comes to appraisals. If one would suggest an appraisal, I would make sure that appraiser is approved to do FHA appraisals also. And have this person view the home from all angles. Some of you might think about just hiring a home inspector. My advice would be to hire an appraiser.

The second idea would be to list the issues regarding the home being sold and not hide them from prospective buyers. Hey, I have heard many types of stories. My main point, if you know about it, make it known to everyone.

Lastly, get your loan officer involved with the issues. Have them run it by their underwriter. I would suggest all things that aren't ordinary within the surrounding area. Valerie's story is a perfect example, because it was well water. Another is that Erica Ramus just listed a property and asked me if this property would be okay for specific types of financing.

 

 

Wait, I know many will harp because it would be another cost to the seller when trying to sell their home. Maybe $375 to $500. How could a realtor explain this cost to the seller?

•    The listing agent can sell it as the cost of selling the home.

•    Split the cost with the seller when trying to win that listing or pay for yourself.

•    Have the buyer pay for the cost within the sales price.

Reminder : Throwing caution to the wind. Some of you will think or sell the idea that the appraisal could be used by the new buyer. I would not recommend this at all. To many new appraisal rules on how appraisal should be ordered and or the time period in which an appraisal is good.

 

 

Summary :   The ending result, how about being pro active. Market yourself aas the problem solver prior to unexpected problems, and not just keeping the fingers crossed. If you get resistance from the seller, use Valerie's story as an example.

Times have changed. Be ahead of those changes before you find out the hard way. It's easy to criticize after the fact, asking why certain loans are tougher on certain issues. This is another reason why FHA loans sometimes get a bad name. But a few things to keep in mind. As I mentioned, Valerie's issue is also an issue on USDA loans. And do you truly know what is the better loan for that buyer? That a conventional loan could be more expensive than a FHA loan, even with decent credit scores?

 

• Comparing FHA loans & conventional loans with 10% down - 699 credit score - FHA wins

• FHA loans vs USDA loans - A true comparision
  

 

 

 

FHA loans in New Jersey with low interest rates can look very inviting.

When shopping for mortgages for FHA loans in New Jersey or any other type of loan, some ads can be very misleading. If you look at the snapshot on the left, you can see some companies listing interest rates that don't even exist. Well, they might, but do you know what kind of interest rates? Let's look at each company's ad.

 

• In regards to the first ad, it states "Today's FHA rates" in blue. Do you even know if that rate is a fixed rate or a adjustable rate? No, you don't. Yes, there are actually FHA adjustable rates in the low 3's, but a 30 year FHA fixed rate would be in the mid to high 4's. Don't get me wrong, you could get a 30 year fixed rate at 3.875%, but it would cost you around 7 to 8 points just for the interest rate itself. Besides, they are offering a rate of 2.8%.
  

• In regards to the second company, they state no social security number needed or no credit check. I could quote you an interest rate, but it wouldn't mean squat until I asked you some questions and pulled your credit report. It doesn't matter what lender you use, everyone needs your credit scores to help determine your interest rate. Besides, depending on your credit scores and what type of mortgage you are applying for, there could be pricing hits for your credit scores.

• Lastly, the third ad states that bad credit is welcomed for FHA loans. One would need to define bad credit. This is just a feel good type of statement to give some hope. Sure, there are lenders that can help with less than perfect credit on FHA loans, but it might take some massaging. Besides, look at part of the link in green, FHA.BestRates____.us  In my opinion, when companies advertise best interest rates or lowest interest rates, it's just to get the phones to ring.

 

 

Summary : Overall, consumers need to be very careful when shopping for mortgages online. Just because someone puts a very low rate out there, doesn't mean that you can get that rate.

There have been new laws for mortgage companies and banks when advertising interest rates. If a lender was going to advertise an interest rate for FHA loans, they would need to state the APR, a loan amount, the P&I, and the LTV. As we can see, none of this was done with the ads shown above. But there is a good reason why. The ads above are those from companies that generate leads that are sold to mortgage companies. So these companies don't have to follow the laws that are in place for mortgage lenders. Again, why you need to be very very careful when shopping for FHA loans online or any other type of mortgage.

 

 

 

 

FHA announced over a month ago that the monthly mortgage insurance  is changing on some FHA loans and it goes into effect on April 18th, 2011. I wanted to put this important reminder out there because what you can purchase and or what you can afford could change a little.

I talked about such changes regarding the mortgage insurance changes in this article over a month ago. - FHA to increase the FHA monthly mortgage insurance -   Why would this news be so important?

 

 

• Many think about refinancing to reduce their monthly mortgage payment, but haven’t pulled the trigger. This new change could make the difference of not refinancing now. It all comes down to your goals. For every $100,000 in money borrowed, your payment will change about $20 a month for the worse. That amount alone could be your make it or break it point.
• If buying in a particular neighborhood that you love, has a great school system, and so much more, but let’s say the price range for that particular area is $250,000 or higher.  With this new change, in order to keep the payment the same or depending on your qualifications, the new change would drop your purchasing price power by $9,000. What if the homes in that area just won’t sell for anything less than $250,000.
• What if you had a specific mortgage payment that you just didn’t want to go over and beyond. This is something that I preach upon when first speaking to a borrower about their financing options.  How much of a mortgage can I afford?I feel that the borrowers goals are very important when making this kind of financing decision. And most of all, that the borrower should have a mortgage payment in their mind that they feel comfortable with. What if you just didn’t want to go over your mortgage payment of $1,800. On a $250,000 mortgage, your payment would increase $50 more a month. I know there are some of us that say, hey, it’s just $50 more. But did you already push the $1,800 a payment the first time around when thinking about this?  Should it have been like $1,700. My point? Just be careful of living beyond your means.

 

Summary : These new change regarding FHA loans and the monthly mortgage insurance on FHA loans are coming up soon and I just wanted people to be aware. Just keep in mind that you must have a full application in place and then the lender assigns your loan a FHA case number. This has to be done prior to April 18th, 2011 before you are subject to the new FHA monthly mortgage insurance change. If you are sitting on the fence, deciding between two houses, you might want to think a little harder. Just don’t wait until the last minute.

 

 

 

 

 

With so many sports to chose from, which do you feel real estate reflects the most?  Do you consider what you do at times as a team sport?  Working as an individual? Always being pushed by your next competitor? Looking over your shoulder? Trying to be the best that you can be? 

How about Golf, since it's not generally a team sport and one needs individual skill. Basketball, since it's a team sport. Tag team wrestling, so you are always tagging each other to help when needed.

 

 

 

 

 

Did you start at a young age, wanting to be a realtor? Did you learn from a mentor at a young and early age?  What got you into real estate?

Do you feel yourself getting beat up often?  Maybe more so because you are so passionate in what you do, that you take it personally and serious? Do you know when to have fun also?

 

 

 

Do you feel like at times that you are never moving forward? Can't get one foot in front of the other?  Feel that rules and guidelines are too strict? Not strict at all? That you seem to be chasing technology because it moves to fast.

Do you feel that the media steps in at inappropriate times, giving the consumer a false hope, good or bad?

Sometimes making predictions that don't come true?  Even your competitor that gives false hope to your potential client, just so they can get their business?

What about those around you in your profession that tell everyone that they are professional. Or possibly act as if they are professional. Do you see them patting themselves on the back for mediocrity in what they do in regards to work. Are you humble enough in what you do, that you just move onto the next client. Having referrals speak louder than words?

 

 

 

Are you the type that plays by the rules?  Plays by your own rules? Treats others the way that you like to be treated. 

You want to talk about being ethical, when nobody would have found out? David & Tonya Kucics wrote this post, Ethics, Real Estate and a PGA Tour Player. Kaye Thomas wrote about the same subject and it opens your eyes. The Right Way to Win....

 

How do you view yourself as a person? How do you view yourself as a professional? As professionals, we should take our job seriously. As PROFESSIONALS, we need to RAISE the bar & educate consumers.........  

 

 

THE END RESULT.....  after that week is done or the day is over..... do you feel like you are on top of the world?

 

 

I have heard many different explanations when it comes to FHA origination fees. In my opinion, there seems to be confusion and inconsistencies when it comes to FHA origination fees. Let's first define FHA origination fee or just origination fee.  In the HUD buying handbook, it is explained to be a fee charged for the processing of the loan application. The origination fee is a percentage of the loan amount, if charged. It's not a standard 1 percent. It could be any fraction of a percentage.  This fee can vary amongst lenders, especially depending on the interest rate. And even though it's defined as a fee for processing, it's used for profit or to cover a lender's profit margin, depending on your interest rate.

Another reason for more confusion is because of the new Good Faith Estimates that went into affect January 1st, 2011. You now have a word called Origination Charge. This is not the origination fee, but the total of all lender charges to include the origination fee.

 

 

As you can see in the picture above, this is part of the new good faith estimate which shows the total as Origination charge. But it doesn't break down any of the other charges. So you don't know if it includes any part of an origination fee, processing fee, etc.

 

 

What you see above is part of a form called the 'itemized fee worksheet'. Not all loan officers or lenders give this to the borrower. As you can see, this gives you a complete break down regarding the origination fee and all other lender charges, aka lender fees. If you add up the origination fee and the commitment fee, it matches what is on the line for the origination charge. If you never see this break down, the only other time will be at closing, when it's broke down on the HUD-1 settlement sheet.

Why can I see this to be critical at times?

In some cases, you might not know exactly what you are paying for until you get to settlement, aka escrow, which is another term used. Some lenders will just roll their lender charges into your origination fee. Why does this matter? You can't write off the lender charges, but you can write off a percentage of your origination fee. Check with your accountant.

 

What are some other key important facts regarding origination fees?

 

FHA Rumor : All FHA loans have origination fees.  False.  It all comes down to your rate, loan amount, and credit score.  

FHA Rumor : FHA gets part of the origination fee on all FHA loans. False. I actually had a borrower that was told this once by another loan officer.

 

 

So, what does HUD/FHA collect on all FHA loans? Just the Upfront Mortgage Insurance Premium (MIP) and the monthly mortgage insurance MMI.  The lender gets all other lender related closing costs. I hate saying this, but if a loan officer tells you that part of the origination fee goes to FHA, don't walk, run very quickly and far away. This is not my opinion, but a real cold hard fact.

 

 

Summary :

Don't let your lender/loan officer confuse you with definitions of certain fees. It's amazing on how some loan officers will define such fees, especially when explaining what an origination fee is. And as a borrower, if you aren't sure, just ask. And no matter what the answer, google the topic. Just double check. As I mentioned, I actually had a borrower that I closed a loan for who was first told by a loan officer that part of the origination fee went to HUD. It didn't sound right, so they searched this online.

 

 

 

Getting pre-approved over being pre-qualified, what does it all mean.

I have been doing mortgages for 18 + years and I have a very strong opinion on the difference between pre-qualification letters and pre-approval letters.

What do we keep hearing on the streets?  Pre-qualification letters aren't worth the paper they are written on. So, pre-approvals are written on gold bars then? The comments below is the reason why I wanted to give more insight to this argument.

 

 

 

Comments from realtors in past discussions :

"A pre qualification is of absolutely no use in my market. If it is not a pre-approval letter...you have NOTHING!"

"The loads of 'preapproval' letters flying around that aren't worth didley really irk me. A good loan officer doesn't run around flying around pre-approvals unless they've done the work."

 

Is there any real true definition that the mortgage bankers association or National Association of Realtors adheres to?  No, not really. It's all based on different definitions by different professionals. So I wanted to break it down using my knowledge and common sense. Keeping in mind that I have discussed this topic with a dozen or so mortgage loan originators who are very knowledgeable, who understand this business, and a few who have underwriting experience.  For the most part, they agree with my stance.

 

 

A loan officer will usually just ask a borrower the basic information. Such as :

• Social Security number to verify/check credit and credit scores

• Job related questions and income earned for the year
  

• Assets, trying to figure out how much they have to spend and how much they would have in reserves
  

The loan officer would then compute the qualifying ratios and if everything else looked good, would then give out a pre-qualification letter. When I do a pre-qualification, I go into more specific questions. ~ Jeff Belonger's mortgage questions ~ I go one step further and talk about your goals and budget. ~ Knowing how much of a mortgage you can afford ~

 

 

The pre-approval will go a step further. The items mentioned above would be collected by the loan officer and reviewed. The loan officer would then compute such figures and run the loan through DU or LP or DO.  (delegated underwriter/loan prospector/desktop originator) These are names of automated underwriting systems used by lenders. And if the system says approved, a pre-approval letter is issued.

 

 

Let's say the loan officer doesn't properly know how to compute income. A borrower gets paid twice a month and not every 2 weeks, which could change the qualifying ratios. Or if the borrower just changed jobs 10 months ago and gets overtime with the new job. It can't be used properly when computing income ratios. What about a large deposit that was just dumped into the savings account, yet the loan officer didn't catch this and it can't be verified.

In my opinion, a real bonafide pre-approval is one that is underwritten by a qualified underwritten or reviewed my a manager in some cases. Anyone can input data into the system and hit the button to get an approval. But if the wrong information is entered, then what?  A denial? 

 

 

Food for thought - I get about 2 e-mails a month from buyers that were pre-approved, after giving their pay stubs, bank statements, and W-2's to the loan officer. Two months later, these same people are denied the day prior or the day of settlement. It happens people and you just need to be careful, no matter what letter you receive. Anyone can fling around the terms, "no problem", "I guarantee", etc. Get to know certain red flags : Mortgage & Real Estate Red Flags

 

 

A pre-approval letter not only is different than a pre-qualification letter, but could have different meanings from different loan officers. There are some loan officers that say they can't underwrite a loan unless you have an agreement of sale. Some who are brokers say they can't do pre-approvals because the lender buying the loan from them won't underwrite it unless it's a full package with an appraisal. But these same loan officers give out pre-approval letters, because they reviewed the information themselves.  Key reminder : Lenders have their own lender-overlays and definitions.

In my opinion, stop listening to which piece of paper is valid and learn the details. Education on this topic in my opinion is very critical. And if you want to get technical, a commitment letter would be the best letter out there, because with most companies, this is issued by the underwriter. Another term would be conditional commitment letter.

 

 

 

 

**** This article is of my own opinion and how I view the differences mentioned above****