Nevada Real Estate >> Las Vegas Real Estate Specialist: Maryland

It looks like the Federal Housing Finance Agency - or FHFA - is getting ready to introduce new regulations later this year that would prevent Fannie Mae, Freddie Mac and the Federal Home Loan Banks - FHLBanks - from investing in mortgage loans tagged with these now notorious private transfer fees. This would then effectively bring major government-controlled home loan players in agreement about them, because FHA already is, according to HUD's regulations, banned from insuring mortgages on homes with private transfer fees. They are considered "legal restrictions on conveyance" in FHA talk.

These private transfer fees are brought to life by covenants attached to a deed that result in a payment to a third party every time a home is sold. The fee generally is 1% of the sales price and paid by the buyer, who may or may not know about it until he's sitting all excited at the closing table. Finding out about it typically elevates his blood pressure even further. Home builders are the ones who usually - but not always - would do this type of thing, giving them an additional, effortless revenue source for 99 years, the standard duration of the arrangement.

FHFA finds several problems with them. They hike home ownership costs up front, make property transfers more complicated and sometimes legally uncertain because regular title searches may not reveal their existence, particularly after multiple ownership changes. They can cause trouble elsewhere, too. Secondary mortgage market investors, lenders and title firms are vulnerable to possible hidden liens and title flaws.

The increased cost factor to home buyers and legal issues for mortgage industry participants are by themselves enough to cause concern. The other big issue is that the home builder who sets up the private fee structure does not provide any service or product to enable him to honestly earn the continuous stream of income. When it's finished with a subdivision, it's gone but would still collect for a long time money for free. Frankly, this seems to take us back to the creative instruments Wall Street not so long ago came up with that ultimately led to the current mortgage and real estate meltdown.

FHFA is on the right track to decisively curtail this from spreading any further. At the moment government entities control over 90% of the mortgage market, so its upcoming regulation will effectively put a stop to private transfer fees, for the good of consumers and the home loan and housing industries.

 

 

The recent oil spill has had a harsh impact on everything associated with the Gulf of Mexico and its alluring waters. One of the less-discussed issues, so far at least, has been residential real estate and how severely is it going to be affected. CoreLogic - a California analytics, business services and information boutique - has bravely ventured into the topic and has compiled some sobering numbers for everyone involved in housing to debate about.

Residential real estate values are supposed to wane in the coastal areas by $648 million for the first year and possibly rise to as high as $3 billion over five years, CoreLogic estimates. This is based on what has happened there to date, which is already quite a monster. Popular beach destinations string along from Mississippi and around the curve down Florida's west coast and hold something like 600,000 homes within 1,000 meters from the water.

CoreLogic's research is based on much-used techniques for forecasting environmental amenity values on coastal property on one side and then measuring adverse impacts on those values when a calamity like the Deepwater Horizon oil spill strikes, on the other. Like in this case, recreational use of the beaches is either limited or possibly completely restricted for a period. Buyers have paid nice premiums for homes on the water and now that extra expenditure is largely lost.

Moreover, should the already spilled oil somehow work its way around Florida and up its legendary east coast the cost would leap up to $28 billion through five years, CoreLogic reports. Florida's housing market is already on a super strong drip treatment and this would set it back even further.

Many who were planning to take advantage of today's low mortgage rates and purchase something around the Gulf of Mexico are predictably having second thoughts about that. Either they are going to wait and see or then look elsewhere, like further up the east coast, all across the Pacific shoreline and also give lakefront real estate a chance. These alternatives may experience a moderate upswing in activity in the coming months.

If the oil in the Gulf is cleaned up rather quickly and unhindered beach access is restored throughout it could lessen the expected amenity value erosion. Even so, the memories surrounding the events from the rig's explosion and demise to the inaccurate oil flow reports and the economic loss to the seafood industry and to the struggles of wildlife will long linger in everyone's mind. There are hundreds of oil rigs operating in the Gulf and their presence could harm potential buyers' trust that their coastal property investment is safe from another calamity.

Photo by divemasterking2000

Fannie Mae recently took an assertive step, in its own mind at least, to stem the growing tendency of mortgage borrowers pulling off strategic defaults. In that homeowners who could afford their payments choose to walk away from the obligation anyway. The GSE went ahead and added another category to the new policy. Home loan recipients who fail to do a workout in good faith also fall under the spell of its new guidelines. What this all means is that property owners fitting these parameters would be ineligible for mortgages backed by Fannie Mae for seven long years from the recorded foreclosure date.

Strategic default entered the already crowded mortgage and real estate vocabulary just recently when the ever thinner-skinned housing bubble couldn't hold on any more worthless air and popped. The event sent property values on a long skid toward the beckoning abyss and in the process wiped out equity in numbers not seen in modern times. Eventually home prices sank below the underlying mortgage balances and to the utter horror of observant homeowners just kept on going down, spawning the unpleasant designation for the phenomenon; underwater. And those underwater on their mortgages are prime candidates for a strategic default.

Right now Fannie Mae controls a decent chunk of the mortgage market and that gives its policy adjustment some teeth. Yet, as government-affiliated home loan providers today just about completely dominate the housing finance arena, no one else has thus far followed suit. Freddie Mac and FHA are the other major performers and predictably will then attract with their less restrictive rules much of the business Fannie Mae will be turning away.  

The private home loan sector is still struggling to rise from the ashes, but when they do so Fannie Mae's policy is bound to lose even more of its bite. Mortgage applicants - with strategic default/ foreclosure on their record - with down payment funds and solid income will be shopping for the best deal and private mortgage lenders with their innovative minds are certainly going to find a way to accommodate this specialty slice of the real estate market pie.

As things stand, Fannie Mae's policy change seems to hold minimal deterrence power for homeowners contemplating to go for the now notorious strategic default. People simply have too many options besides Fannie Mae to look at.

Home Affordable Modification Program, or more commonly HAMP, was rolled out to allow mortgage lenders and servicers to make available trial modifications to an estimated 3 to 4 million homeowners.When Treasury announced its birth it raised hopes among not only mortgage borrowers in trouble but also government officials who frantically tried to bring the collapsing housing market back to its feet and with that give the badly-mauled banking sector something more concrete to lean on. But things haven't turned out all that well with HAMP.

At least that's what SIGTARP says. SIGTARP is another wonderful acronym - among so many - that has risen to fame on the heels of the memorable finance and real estate crash and stands for Special Inspector General for Troubled Asset Relief Program. That's a long one. In short, he is - could be a she too - tasked to monitor the government's massive struggle to bring reasonable order to the shaky national banking system and the besieged housing realm.

SIGTARP refers to the 389,198 permanent mortgage modifications HAMP has thus far managed to generate, as was recently reported by Treasury.This of course is far less than what the original plan of at least doing 3 million of them called for. One thing is that HAMP is an ongoing process and perhaps when it's all said and done that plateau can be reached. But, frankly, it probably won't happen.

For one, due to high mortgage redefault rates under HAMP underwriting guidelines have been tightened leading to scores of cancelled trial and permanent modifications.It is greatly lowering the potential candidate pool. Short sales are making serious inroads as a viable option for many struggling home loan recipients. Doing a HAMP requires a lot of paperwork and patience and many are willing to take their chances with short sales.

The underwater menace seems to come into play with HAMP, too.Its malicious impact is somehow going to touch all corners of the housing enterprise. When a homeowner is sufficiently underwater he can be essentially convinced that making those lower HAMP payments for years on end still won't pull him out of the negative equity hole anytime soon, so he clearly has little incentive to apply for HAMP. Lower payments are great, but where is the equity? After careful consideration many choose to just simply walk away from their mortgages.

Besides, mortgage lenders generally haven't been all that enthused, for one reason or another, about putting their arms around the program either.HAMP appears to have suffered from clearly-defined goals, as SIGTARP claims, but also from rapidly shifting real estate market conditions. With more assertive administration Treasury could have streamlined its direction and possibly been more efficient in the use of taxpayers' money.  

 

The housing collapse has been particularly brutal to home builders. It's hard to market new houses regardless of the latest features when similar resale property is selling for 20-40% less. The usual incentives, like kitchen or flooring upgrades, have very little impact when the price difference reaches, say, to $50,000, and often much higher than that. The gaps are especially wide in badly-mauled cities like Las Vegas and many areas in Arizona, California and Florida. Inviting mortgage rates are available to all buyers, so no help there either.

In order to generate more interest in their products residential real estate developers have been frantically searching for ideas that would give them a chance against the low-priced mortgage foreclosure and short sale properties littering neighborhoods across the land. Several have put their arms around the green home, a concept that was making some progress over the past decade but then was largely tripped by the housing meltdown.

KB Home is heavily using Energy Star features in its homes, including energy-efficient cooling, heating and ventilation equipment as well as appliances. Beazer has the eSmart Green program that also builds homes to Energy Star standards. As an option it offers the SolarLease^TM program in Phoenix that comes with an integrated solar power system, bypassing the pricey upfront installation costs. 

Meritage Homes takes all this to another level. The builder offers as standard an array of green magnets at its new subdivision in Gilbert, AZ. In addition to the regular ones like high-performance windows and spray foam insulation each home comes with a solar system and weather sensing irrigation. All this can save the homeowner up to 80% in utility bills, according to the builder. Meritage snapped up last year land for the project at a deflated price that allows it to throw in these features and still stay competitive with the existing real estate market.

It's too early to tell how in this trying real estate market of record-low mortgage interest rates and ample supply the resurrected eco product will fare. The home buyer remains largely in a holding pattern with great concern about the overall economy and therefore might be hard to convince to apply for a home loan to make a purchase. If anything, this nascent trend should give the green housing advocates something to cheer about.

 

 

 

I have been talking about comparing FHA loans to Conventional loans and how to use your money wisely in my last 2 mortgage posts. The links are below and I suggest you reading them to find out what the fuss is all about. But in this post, I wanted to bring up 2 important points.

• some people argue that you should put more money down if you have it, so you don't become up-side-down in your property (I disagree with this statement)
  

• another point is that you could actually make a lesser down payment and take some of that extra money that you saved and use it to buy your interest rate down. It all comes down to your goals.

 

So, let's jump into this a little deeper...

 

 

 

So your fear is that you could be upset down on your property if you don't put 20% down or so? Let me pose a question to you. Why would it matter right now? Homes aren't suppose to be purchased like a car, to where you sell it or trade it within 2 to 5 years. Sure, unforeseen things can happen. But homes are suppose to be a place to live in, raise a family, possibly have your kids go to that school system, and for fond memories. And overall, it's a long term investment.

If you were to buy a home for $200,000 and put 20% down, you would have a mortgage of $160,000. What happens if in a year or so that value of your house drops to $165,000?  Then you have nothing at that moment. And if you needed money as an emergency, you just can't walk up to your house and say, "house, please give me some of money back." Especially not in today's market, because of the fact that it's tougher to get mortgage financing.

 

I don't have a crystal ball, but home values should come back in the next 3 to 5 years. And in some areas they have come back now. But if they don't, why not take the money that you saved from not putting it all down as a down payment and invest it, to make more money. It can happen, think about it. And worst case, you have that extra money for emergencies.

Please read - Don't be cash poor - Cash is king

 

 

 

 

Onto the second part of this post, something else that you could do with your left over down payment. Buy your interest rate down, which allows you to get another bang for your buck. It's very simple math.

In my scenario below, you will be putting 10% down on a FHA loan as opposed to the required 3.5% down for all FHA loans.  I will show you the difference in mortgage payments and what you could actually do with that extra money, even when it comes down to lowering your interest rate.

 

 

 

 

FHA Loans – Comparing 10% down to 3.5% down

Scenario # 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

My sole purpose in this comparison is to show that cash can be king and that you aren't hurt as much if you just put 3.5% down on FHA loans.  On the 10% down, you will be better by $4,193.60 in 5 years. But by putting 3.5% down, you are keeping $14,787 in your pocket upfront and your total monthly mortgage payment is only a total of $41.61 extra. In my honest opinion, that is a very good trade off in order to have more cash left over for several things such as :

• monies left over to fix up the house

• future home repairs

• new furniture

• loss of future income

• family emergencies

• possibly put some money into investments to get a better return
  

 

Overall, just left over cash for security for unknown circumstances....

 

 

 

FHA Loans – Comparing 3.5% down w/buying down interest rate

Scenario #2

 

 

 

 

 

 

 

 

 

 

 

Lastly, this is a very simple comparison. You now have the extra cash from scenario #1 above to use to buy down your mortgage interest rate. Not only do you save $91.22 per month, but it only takes you approximately 3 years to recoup the money that you spent to buy down your interest rate. As I have stated in several posts, the average person stays in their home for over 6 years. Your end result then is that you will save more money by buying down your interest rate.

 

 

 

Disclaimer :  The rates are examples in today's market, aren't any form of advertising, and aren't for solicitation of new business. It's merely to educate the consumer. And the spread shown in these examples are real as in the profit margins for both sides, in order to compare apples to apples.

 

 

 

For more FHA loans vs conventional loans comparisons :

• FHA loans vs Conventional loans - A true numbers comparison with 5% down -  12-20-08 -Using a 710 credit score
  

• FHA loans vs Conventional loans - A real comparison with 5% down - 11-15-08 - Using a 659 credit score
  

• FHA Loans vs Conventional Loans - 20% down - A Rude Reality Check -  04-03-09  - Would you believe that FHA loans could be cheaper even with 20% down?  Come see why and how.

• FHA Loans vs Conventional Loans - 5% - 4 comparisons that you need to know - 05-02-09 -Comparing a FHA loan against 3 types of conventional loans with different types of monthly mortgage insurance. Guess who won while still using a 679 credit score.....

• FHA loans vs Conventional loans - Knowing the true comparisons - 07-10-09  - A great comparison with a 679 credit score and 5% down.  This example will still show that even with a better than average credit score, that FHA loans are still better in many cases.

• FHA loans vs Conventional loans - Things you need to know with 10% down, especially in regards to Condos - 09-19-09 -

 

Donw Payment Series - A Must Read -

• FHA loans vs Conventional loans - A real comparison with 20% down - Part 1 of 3 - 01-28-10 - Not much of a difference, unless you stay in the house for more than 5 years. Hence why a loan officer should be talking about your goals. So very important, yet many dont ask.

• FHA loans vs Conventional loans - Don't be cash poor!! - Part 2 of 3 - 01-29-10 I want to show even a bigger difference if you put less down. And even if you decided to put less than 10% down, because cash is king now. You can't predict even next week. And keeping in mind of some misleading rumors, that you need more than 10% down to buy a house.
  

• FHA loans vs Conventional loans - Get a bang for your buck - Large down payments aren't always the best way - Part 3 of 3 - 02-01-10 - Some great examples of having cash left over and not really affecting your monthly mortgage payment. And that you will have cash left over for emergencies. Keeping in mind that cash is king.
  

 

 

• Make sure you know about the NEW FHA loan changes : FHA loan changes for 2010 & why they changed. Reasons for these FHA changes and when they go into effect.

• And sellers, don't listen to your agents on how bad FHA loans are.

 

 

 

 

                    

                                                                                               FOLLOW ME ON FACEBOOK

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

 

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

 

Don’t be CASH POOR – CASH is KING

 

 

FHA loans have been used more in recent years. Many have talked negatively about FHA loans because of their high default rates as of lately. Don't be fooled by chatter that is not backed up by fact and why this is happening.  Please read : Should we ABOLISH FHA loans?

One of the main myths that I wanted to dispell in this blog post is that you don't need 20% to buy a home in today's real estate market or that you need a 720 credit score. These are bad myths and rumors. You can read about it here : Credit scores/FICO scores - I need a 700 credit score?

Yesterday, I wrote a post about comparing a FHA mortgage to a Conventional mortgage with 20% down. FHA loans vs Conventional loans - A real comparison with 20% down. - Overall, it all comes down to the borrowers needs and goals. Yet not all loan officers dig this deeply. Usually because the focus is lost when the borrower wants to know the mortgage interest rate and fees. More on that in a post on Sunday.

 

 

 

Please read these links before moving forward (the next 3) : It’s extremely important

 

Please read this question about why my conventional rates are so much higher :  Someone's question to why my conventional rates are so high.

My response : Just a basic response to why the conventional rates are much higher.

And proof that it's not just me.. all lenders need and have to follow the same pricing hits. Conventional PRICING HITS

 

 

What is the big fuss of putting 20% down other than you don't have mortgage insurance? Here is my chart from yesterday.

 

Loan comparison of 20% down between FHA loans and Conventional loans

SCENARIO # 1

 

 

 

 

 

 

 

 

 

 

 

In regards to scenario #1, this is great if you have 20% down. But is it? Please read why going with a conventional loan with 20% down still might not be your best option. 20% down comparison between FHA loans and Conventional Loans   Hint: Goals - 

 

 

Dropping the down payment by 1%, making it 19% down and not 20% down.

Scenario # 2

 

 

 

 

 

 

 

 

 

 

 

Scenario # 2 - There is no large difference except that your monthly mortgage payment is lower on a FHA loan when putting less than 20% down. **Conventional mortgage insurance is not standard as it use to be. Meaning that these figures could change depending on the insurance company, the fico score, and in some cases, where you purchase the property.**

 

 

Loan comparison of 10% down between FHA loans and Conventional loans

Scenario # 3

 

 

 

 

 

 

 

 

 

 

 

As you can see, when you put less than 20% down, and depending on your credit scores, FHA mortgages will be much cheaper in the monthly mortgage payment. I give a better description and understanding of the differences in this blog post : 10% down comparison and understanding the upfront mortgage insurance on FHA loans vs conventional loans.

My whole point to this post though is about cash, cash savings, and reserves. And in today's economy, cash is king. Let's look at it this way.

 

 

Loan comparison – Conventional loan w/20% down vs FHA loan w/10% down

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Overall, there is no true correct answer. It first must come down to how comfortable you are in your finances. But here is a clear indication that just because you put down 10% more, which is an additional $30,000, doesn't mean your payment drops as signficantly as many of you might think. (this will vary depending on loan amounts) Don't get me wrong, saving an additional $186.71 a month can be huge. But at the same time, you could keep $30,000 in your pocket instead. If you want to try and compare apples to apples, just take the difference out of the monies that you saved from your 10% down payment. Set aside $11,200 in a seperate account to lower your payment. It would still leave you with $18,794 now, after closing. 

One word of advice.... you don't have to try and pay down your mortgage as soon as possible.  Yes, this is a good security blanket for so many. But you also don't know what the future holds for you.  Besides, you could take $10,000 of your money left over and invest it in several areas that would give you a better return of 7% to 8%, especially since you are paying 5% on your mortgage. But you would need to speak to a financial consultant about this.

 

 

Summary : No matter how much cash you have or don't have, this is how your loan officer should help you understand your mortgage and financial situation. Cash can be king and be useful in unknown emergencies. Don't always fall for those commercials that scream, "don't let the banks rip you off, learn how to pay off your mortgage quickly".(you don't need these programs, such as the mortgage accelerator programs... you can do this on your own)

On another note, I am not saying that your loan officer needs to show you this exact breakdown. But it's more than just about the best interest rate and or fees. What is the best program for you based on your goals and the mortgage program. I will be talking about this over the weekend. Stay tuned. 

Knowledge is Power... And don't forget that you can still put down 3.5% with FHA loans, as opposed to conventional loans needing 5% to 10% down.

 

 

Disclaimer :  The rates are examples in today's market, aren't any form of advertising, and aren't for solicitation of new business. It's merely to educate the consumer. And the spread shown in these examples are real as in the profit margins for both sides, in order to compare apples to apples. The conventional rate also includes the penalty for the 659 credit score and down payments. This is because of the large pricing penalty for the credit score.

 

 

 

For more FHA loans vs conventional loans comparisons :

• FHA loans vs Conventional loans - A true numbers comparison with 5% down -  12-20-08 -Using a 710 credit score
  

• FHA loans vs Conventional loans - A real comparison with 5% down - 11-15-08 - Using a 659 credit score
  

• FHA Loans vs Conventional Loans - 20% down - A Rude Reality Check -  04-03-09  - Would you believe that FHA loans could be cheaper even with 20% down?  Come see why and how.

• FHA Loans vs Conventional Loans - 5% - 4 comparisons that you need to know - 05-02-09 -Comparing a FHA loan against 3 types of conventional loans with different types of monthly mortgage insurance. Guess who won while still using a 679 credit score.....

• FHA loans vs Conventional loans - Knowing the true comparisons - 07-10-09  - A great comparison with a 679 credit score and 5% down.  This example will still show that even with a better than average credit score, that FHA loans are still better in many cases.

• FHA loans vs Conventional loans - Things you need to know with 10% down, especially in regards to Condos - 09-19-09 -

 

Donw Payment Series - A Must Read -

• FHA loans vs Conventional loans - A real comparison with 20% down - Part 1 of 3 - 01-28-10 - Not much of a difference, unless you stay in the house for more than 5 years. Hence why a loan officer should be talking about your goals. So very important, yet many dont ask.

• FHA loans vs Conventional loans - Don't be cash poor!! - Part 2 of 3 - 01-29-10 I want to show even a bigger difference if you put less down. And even if you decided to put less than 10% down, because cash is king now. You can't predict even next week. And keeping in mind of some misleading rumors, that you need more than 10% down to buy a house.
  

• FHA loans vs Conventional loans - Get a bang for your buck - Large down payments aren't always the best way - Part 3 of 3 - 02-03-10 - Some great examples of having cash left over and not really affecting your monthly mortgage payment. And that you will have cash left over for emergencies. Keeping in mind that cash is king.

 

 

• Make sure you know about the NEW FHA loan changes : FHA loan changes for 2010 & why they changed. Reasons for these FHA changes and when they go into effect.

• And sellers, don't listen to your agents on how bad FHA loans are.

 

 

 

                    

                                                                                               FOLLOW ME ON FACEBOOK

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

 

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc