A Foreclosure & How It Affects You Buying Another Home

Most people do not know that the release date that banks have to go off of is not the date that you are foreclosed upon and they take title from you.  The release date is the date that the bank disposes of the property. 

It can take a bank months or years to finally sell your property and that is when your waiting period begins.  Typically the bank won’t allow you to buy again for another 4 years but there were new rules that Fannie Mae came out:

• Deed-in-Lieu of Forecloure is 2 years with a minimum of 20% down.
• Preforeclosure sale is 4 years with a minimum of 10% down
• A short sale is 7 years and the down payment will depend. 

If you can show an extenuating circumstance than all of the above goes to 2 years and a minimum of 10% down.  Fannie Mae defines a unique hard ship as:

• is unlikely to re-occur and is not a natural or manmade disaster;
• is temporary in nature or of limited scope, but impacts many borrowers;
• may involve property damage, hazard in the dwelling, or other adverse property conditions;
• creates financial hardship that impacts the ability of the borrower to continue making payments on the mortgage loan;
• may involve uncertainty regarding whether insurance will cover the losses incurred; and
• has been designated as a “unique hardship” by Fannie Mae.

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/svc1011.pdf 

FHA requires 3 years and VA is 2 years.  The years and guidelines mentioned above are subject to change without notice and can vary from bank to bank. 

An example of it taking years would be if your bankruptcy was discharged in January of 2008 and the property wasn’t sold until January 2010 you have to wait 2 years from January of 2010.  Just because the property was included in the bankruptcy doesn’t matter.

Refinancing: Whom Can Your Trust?

That was the headline in The Wall Street Journal and I have included the link below.  There has never been a more important time to deal with a mortgage expert.  As I have said a hundred times lately, there is much more to a mortgage than an interest rate. 

You truly get what you pay for in life and I think many people are slowly starting to realize that.  If someone offers an interest rate much lower than everyone else it either doesn’t exist or you are going to receive very poor service and advice. 

I am not kidding when I say that I get numerous calls a week about deals that did not close and they found out at the last minute.  The other day a client called and said he needed to refinance his property to get his name off of the loan so he can buy another home.  I mentioned doing an assumption and he said he is working on that right now.  However, prior to that he tried refinancing his FHA mortgage but the appraisal came in too low.  I asked why he didn’t do an FHA Streamline Refinance Without an appraisal and he said his mortgage person never mentioned that.  Now, that low appraisal is tied to the property and his only hope is that his current mortgage servicer will do the assumption. 

There is no set formula for determining when it benefits you to refinance.  It all depends on how long you plan on keeping the loan, how far in you are with your current loan, the costs and savings involved, etc.  This is especially true with FHA refinances since they can be more costly with the Upfront Mortgage Insurance Premium.  You need a Mortgage Professional to help guide you. 

http://online.wsj.com/article/SB20001424052748704652104575494190518195172.html 

10 Reasons To Own a Home

There are pros and cons to everything but if you can afford to buy a home and are doing it for the right reasons here are 10 reasons why you still should.  It’s a rebuttal to the terrible article in Time Magazine.

Enough with the doom and gloom about homeownership. Sure, maybe there’s more pain to come in the housing market. But when Time magazine starts running covers that declare “Owning a home may no longer make economic sense,” it’s time to say: Enough is enough. This is what “capitulation” looks like. Everyone has given up.

http://www.marketwatch.com/story/10-reasons-to-buy-a-home-2010-09-15 

1% Increase In Mortgage Rates Reduces Buying Power By 10%

Hopefully this will put into perspective the important role of historically low interest rates.  No one can predict what home prices will do but what we do know is that rates are still at historic lows.  Yes, I said this when interest rates were in the low 5%’s and high 4%’s but guess what?  They were at historic lows and now those buyers can look at refinancing into the even lower rates now.  You can’t time a bottom with anything and this just proves.  Even if you can’t refinance or don’t want to pay closing costs again to get the lower 4%’s you still have a historically low interest rate. 

Time Magazine just had an article about reconsidering home ownership but that’s because it’s not for everyone and not everyone should own a home.  The problem was almost everyone did and was able to.  That has changed. 

Here’s another article from Time Magazine from back in 1992 http://www.time.com/time/magazine/article/0,9171,976602,00.html.  It’s pretty crazy how identical it is to what we are going through now.  I started reading it and didn’t realize it was from 1992, I thought it was written recently.  If you bought a home back in 1992 when everyone was afraid because they were experiencing something similar today you got a nice return on your money and you have equity if you didn’t use your home as an ATM.

There are many things you need to csider before buying a home.  You need to make sure you plan on staying in the home or owning it for close to 10 years and you can’t view it as an investment but as a lifestyle.  This home is for you and your family.  You need to look out long term and determine if you think you will still be at your job in 5-10 years, can you afford the additional costs of owning a home, etc. 

This isn’t meant as a sales pitch to get you to buy a home.  It’s to explain to you how important these low interest rates are.

Forget Larger Down Payments, Lend Like The VA

I have been Blogging about changing the way we lend and emailed Secretary of HUD Shaun Donovan that we are still lending poorly.  I have had a pretty strong stance that we need to look more at debt to income ratios and reserves and I still agree with it however I was talking with my Managing Director and he brought up a great point.  He said the lending model should be the same as VA.  I think he hit it right on the nose.

The reason behind this is because VA looks at debt to income ratios, residual income based on family size and NET income, and takes into account child care expenses.  I guess they have to when they are requiring zero down however it is a great way to base all lending standards on. 

We are too stuck on credit scores.  Yes, that might have worked well in the past but things have changed and people have changed.  We need to control the consumers behavior because they have no self-control.  I can tell a borrower a hundred times that they shouldn’t be spending that much even though they qualify but they will pick up and go to the next Loan Officer that will do it because they can and they need to get paid. We need to keep Mortgage Professionals in check too and that includes me. 

These borrowers are a broken refrigerator away from foreclosure.  You can get a loan with a 55% debt to income ratio and not a penny leftover after closing.  How can we do this to these people and our country?  It is setting them up for failure.  Our country is financially illiterate and we need to guide them. 

A lender (to remain nameless) came out with an announcement stating:

Based on feedback received from our Correspondents regarding their inability to capture DTI on secondary market transactions, we are pleased to announce the removal of the maximum 50% DTI on FHA transactions.  With the exception of the manually qualified streamline refinance, the maximum DTI for all other FHA transactions will be per AUS.

Let me translate this for you.  “Due to us losing business since others will allow above 50% and the secondary market doesn’t care quite frankly we don’t care.”  Are you kidding me?  Your lending standards are based upon what the secondary market picks up on?  The lending guidelines should be based on risk and a borrower’s ability to repay a loan and the fact that you want your company to be around for the next 100 years. 

I could go on for days on this.  The bottom line is something needs to be done about it and I am trying to be the voice for it because I do this for a living everyday, Shaun Donovan doesn’t!

Getting The Right Loan

I have written many times about how a loan is much more than just an interest rate.  It’s about getting the right loan and advice to put you and your family in the best financial situation now and in the future. 

Every borrowers situation is different but for the most part I like a 30 year fixed rate mortgage over a 15 year because with a 30 year you can always make a 15 year payment if you want but with a 15 year loan you can’t make a 30 year fixed payment when money is tight. 

I am sure there are many experiencing this now and that is evident from an article in The Wall Street Journal yesterday called “I can afford my home with the right loan.”  I have included the link at the bottom of the page.

I am one of those “troubled borrowers.” My problem is not that I can’t afford my home, but that I can’t afford my existing 15-year mortgage. I need a 30-year mortgage, but I’m unable to refinance because of my home’s decline in value. I could easily afford to buy my home at today’s value with a 30-year mortgage at today’s interest rates. And the miserable irony is that the next owner of my house, after the foreclosure sale, will receive exactly that deal.

When you are looking for the lowest rate that’s the type of service and advice you are going to receive.  You get what you pay for and if you want to put the purchase of your largest asset and liability in the hands of some random person you found on the internet then go right ahead.  I heard a saying by a veteran in the mortgage industry say “you shop for shoes, you shop for clothes, but when you shop for a mortgage you get stuck with the biggest liar.” 

Another thing to keep in mind with a 30 year versus a 15 year fixed is that with a 30 year you might have an easier time qualifying for a mortgage or other types of credit down the road because the debt to income ratio for a person with a 30 year is going to be lower than a 15 year.  

http://online.wsj.com/article/SB20001424052748703369704575461920484221104.html 

Changes to FHA Mortgage Insurance Premiums

HUD just released a new mortgagee letter with the specifics to the changes in the Upfront Mortgage Insurance Premium and the Monthly Mortgage Insurance Premium for FHA loans.  Here is the link to read it in its entirety http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-28ml.pdf  

The Upfront Mortgage Insurance premium decreased from 2.25% down to 1% and the Monthly Mortgage Insurance Premium increased from .55% to .90% on loan to values above 95% (less than 5% down) and from .50% to .85% on loan to values less than or equal to 90% (5% or more down) if you are getting a 30 year fixed loan. 

This will make it more costly for the borrower so now is the time to buy to avoid these changes.  You just have to be under contract prior to October 4, 2010 so that we can get an FHA Case Number for you.

Benefits of Owning a Home Which Have Nothing To Do With Investment Gains

Over the past 6 months I have been repeating Ric Edelman’s saying of owning a home shouldn’t be viewed as an investment but a lifestyle. 

When you own a home you get to make it yours and change things that fit you and your family best.  Just because housing isn’t a way to get rich quick anymore like it was during the boom years doesn’t make it a bad investment.  I am sure those who bought in 1992 at the end of the recession were happy with their investment 10 years later.  I don’t know where home prices will be in 30 years but what I do know is that if you pay rent for 30 years you don’t accumulate anything. 

Buying a home isn’t for everyone, nor should it be.  That is what got us in this mess in the first place.  There is nothing wrong with renting especially since there are more expenses associated with owning a home. 

Here are five of them:

· Be your own landlord. The bank can only kick you out if you don’t pay; a landlord can be much less dependable – deciding to sell the property or choosing to live there themselves.
· Paying the principal is forced savings. Yes, it’s possible that home prices will fall further. It is also possible that your 401(k) will lose value. But over the long haul, both are likely to enjoy modest gains in value.
· Fixed-rate mortgages never rise – and eventually you pay them off. With mortgage rates at record lows, people who buy now are locking in real bargains.
· Good schools. Family-sized rentals are harder to come by in areas with excellent public schools.
· Spacious properties in pleasant neighborhoods. Sizable homes in attractive communities are almost always owned – not rented.

http://www.realtor.org/RMODaily.nsf/pages/News2010083001?OpenDocument&WT.cg_n=RMO&WT.cg_s=RSSDaily&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DailyRealEstateNews+%28Daily+Real+Estate+News%29&utm_content=Google+Reader