Ruth's Blog: August 2008

It's the end of the month ALREADY! Oh my!!

Here are the highlights of the posts done this month with easy access to find the info for reference in the future.

1st Time Homebuyer Credit 

FHA Changes to Down Payment

Down Payment Assistance

Short Sale as Bad as Foreclosure

FHA Mortgage Insurance Premiums

ALSO - here is an important link when you want to be reminded of what the maximum loan amount is for an FHA loan is for a specific county: FHA MAX LOAN.

Next week I'll give you a preview of the upcoming FHA Mortgage Insurance Premiums... and more!

Here we go again! FHA mortgage insurance rates will be changing effective October 1st (bet you're getting used to hearing "changing" by now, huh??) But, before I post up the new ... I wanted to post what the CURRENT rates are for reference. (Stay tuned for the update to follow soon so be sure to subscribe to my posts for the update!)

Short Sales today seem to be all the buzz! While the pros and cons of a short sale can be bantered back and forth, there is one negative that isn't fully understood: many think that a short sale is saving their credit.

 IT'S NOT!

When you a buyer does a short sale to assist them in the sell of their home, it will show up on their credit, even if the investor agrees to accept the balance as paid in full. When the seller of that home attempts to purchase their next home and completes the loan application form, there is a question "Have you ever had title or deed transferred in lieu of foreclosure". The correct answer would be "Yes". NOW is when there is the issue ...lenders DO view a short sale (or any mortgage 120 days or more past due, for that matter) the same as a foreclosure. Start the clock ticking, cause now we have to wait three or four years (depending on the loan program) to get them approved for the new loan.

Few sellers are actually told this!

However, it would seem that SOME sellers did understand this upfront. So, they acquired a new home before letting the existing home go into default or positioning themselves for a possible short sale. They "leased" out the current home so they weren't hit with two payments and could qualify for the loan on the new home. And when the "lease" would fall through, the seller would then quit making the monthly payment on the initial home not caring about the impact on their credit.

So now guess what? The guidelines have changed on accepting a lease agreement to offset the current mortgage payment.... and it's not pretty! We no longer can accept just a signed lease agreement, but we now also have to document the deposit AND the property must have 30% equity in the existing home!!! (This new rule does not apply to government loans.)

So I ask you, how many today have 30% equity in a home they are thinking about renting? But the better question is who with 30% equity would let it go into foreclosure?

Yikes!

Why should the elimination of Downpayment Assistance Programs with the signing of the Housing and Economic Recovery Act concern YOU?? READ THIS, BECAUSE THERE IS STILL HOPE AFTER OCTOBER 1ST!

I think we could agree that the housing industry is currently in a national... shall we say, "slump", right? And why is that? Because we have more sellers than buyers. So where can we find more buyers? hmmmm... renters maybe?? Yet 30% of all renters aren't buyers due to lack of down payment.

And here's how that affects EVERYONE whether they own real estate now or might want to in the future:
1. Renters can't buy starter homes because they don't have a down payment.
2. Move up buyers can't buy bigger because they can't sell their starter home.
3. And luxury home buyers can't enter that market because they can't sell their homes either!

There should be other reasons we want first time homeowners to have the ability to own homes besides our own desire to sell ours, though. Please read the summary of the report done by John Hopkins University covering The Effects of Home Ownership on Families. This report covers everything from the educational and income impact to teenage pregnancies!

BUT there could be a light at the end of the tunnel that you need to know about: HR6694 is the bill that was introduced to the House trying to bring back DPA, the very next day after President Bush eliminated all seller assisted down payment assistance programs with the signing of HERA.

Believe it or not, we are still debating whether the down payment assistance program is really going to be GOOD for the housing industry?? To see what other opinions on the subject are, go to WashingtonWatch. This site also allows YOU to cast YOUR vote on the subject. It also contains links to the bill, and links to your representative.

And if you're still not convinced whether or not to take action, go to: www.rallyforhomeownership.com to get the facts on the issue. (By the way, some of those in congress believes that DPA was the cause of 28% of the FHA foreclosures. HOWEVER, did you know that FHA didn't even track the source of down payment beyond "gift" until recently? Hello?)

YOU need to get involved NOW. Please call your Congressman and plead with them to support HR 6694. OH! And tell your friends and family to do so, too!

(NOTE: they reconvene on September 9th and the target adjournment date is September 26th. That means there is only 18 days for them to pass this bill before the Housing and Economic Reform Act kicks in on October 1st eliminating the program.)

I read this earlier this morning (http://activerain.com/blogsview/661557/Real-Estate-One-Liners):

 The dream of the older generation was to pay off a mortgage. The dream of today's young families is to get one. 

Is that funny?

With the signing of the Housing and Economic Recovery Act (HERA), came a tax credit of up to $7500.00 to first time homebuyers (defined as not having owned a home in the past 3 years)! The amount of the credit (NOT a deduction - an actual CREDIT) is based on whether the homebuyer(s) is single or married and their annual income.

To be eligible for this credit, the purchase must have been made between April 9, 2008 and before July 1, 2009. This means there are many, many homebuyers that may already qualify and may not yet know it!

Here's how it works:

The tax credit is equal to up to 10% of the value of your home, up to $7,500.

If you are single and your income is less than $75,000, you earn 100% of the credit; if you make more than $75,000 the amount of credit phases out (at $95,000 you no longer qualify for any credit.)

Married couples will qualify for a full credit if they make less than $150,000 jointly; and phases out at $170,000.00.

IT DOES HAVE TO BE REPAID! After two years of the credit, assuming you qualified for the full $7,500, you would repay the loan at $500 per year for 15 years (run that one on the calculator! You get $7500, you repay $7500!) If your home sells prior to the repayment, the unpaid amount is due upon sale, provided there is equity to repay it from.

Realtor Research has put together a WONDERFUL five page definition with charts to help explain this credit in detail: 1st Time Homebuyer Tax Credit Information

Take this form to your accountant or CPA to further discuss the pros and cons of the credit and qualification criteria.

Many changes went into effect with the signing of the Housing Bill, referred to as HERA or Housing and Economic Recovery Act of 2008. TOO MANY changes to cover in one post (after all, the bill was 789 pages long!)

One of those changes is the FHA required down payment going to 3.5%.

For more information on this topic, visit my blog site at: http://talkingaboutloans.blogspot.com/.

The mortgage application process is known to be the second most "man made" stressful situations of our lifetime (divorce is number one).  Not understanding the process is one of the reason, so here are some "inside tips" to help borrowers know what to expect, but more importanty what NOT to do!

Don't Buy Anything! Right after you buy a new home, the first thing we all do is start "mentally moving". Meaning, we try and figure out where the couch will go, where to angle the TV, but also what we need to fill that entry or game room, or spare bedroom! And then don't forget the landscaping, drapes, or new appliances! But STOP! One of the mortgage loan qualifying criteria is your "debt to income ratio". A new purchase may not affect your loan approval, but check with your loan officer before you move forward with that new payment. (By the way, a great website that has an easy to use and FREE room planner is here: http://www.afwonline.com/roomplanner.asp.)

Don't Miss a Payment! Its' easy to get distracted with everything you have going on right now, but what you don't want to do is miss your minimum monthly payments. Saving for your down payment and wanting those little extras for your new home - even the cost of moving can get you off your budget. Don't take a chance, cause a missed payment can cause your credit scroe to drop.  A drop in your score may result in an increase of your interest rate!

Don't change jobs. This isn't the time to think about changing employers. And certainly not a time to consider changing careers! Lenders also look at your job stability and require that you have been in the same line of work for at least two years. And NEVER, EVER switch from being a salaried employee to taking a commissioned position (or worse, becoming self employed) while you are in the process of getting a loan for your home. Lenders would then require two years tax returns to substantiate your income for the purpose of granting you a loan. So stay put. At least for now.

Don't move those funds. Sometimes borrowers will move all funds to one account for easy access prior to closing. Makes sense, huh? Except that lenders must identify the source of any large deposits (we have to make sure there are no loans associated with the recent deposit). So, if you do move your funds from one account to another, make sure you keep a clear paper trail to help us identify the source.

Pack selectively! Packing up your personal belongings is okay. But keep any important paperwork available (bank statements, tax returns, pay stubs) just in case there's a last minute need to give the lender copies! And a tip when packing with children that's NOT mortgge related: a move to a child can be quite upsetting. So let them pack a box with all their favorite things. It will make them feel more secure AND like they are helping!

No leasing either! It seems that occasionally there is confusion on whether a lease is really considered new debt. IT IS! Back away from the car (and the temptation to fill that bigger garage with another car!)

Possibly none of these actions will affect YOUR loan. But now isn't the time to gamble with one of the biggest investment you will most likely make in your lifetime. Just check with your lender FIRST! 

There are a few other tips you should know to avoid time delays when buying a home:

Communicate any contract changes to your lender at once.

Start researching homeowner's insurance rates and coverage options immediately!

Notify your lender and realtor at once if you plan to be out of town the day of closing.

Hope you find these tips helpful!

Ruth Vogt, Branch Manager

WR Starkey Mortgage

Toll free: 877-489-0709

Oh, my! There's a new model coming to town! A new CREDIT SCORING MODEL that is!

We've been watching for FICO 08 for almost a year now, but now expecting it to roll out the first quarter of next year - that would be 2009!

What's it going to do? Remove "authorized user" credit history from an individual's credit profile. There's good news and bad news associated with FICO 08.

The good news: it will stop individuals from "renting" their good credit. That's right! There are actually people out there that RENT their credit to individuals with either no credit or bad credit in an attempt to raise poor or no credit scores to an acceptable level. Does that sound wrong to you? Me, too! And FICO 08 will put an end to that credit scam.

The bad news: spouses, college students, who have been added to accounts to help them establish a credit history won't be able to do that by being added to a credit card of their spouse or parents. So the "here today and gone tomorrow" expression should make my point. That's right! That credit history will just vanish. So get ready because we can only imagine what this might do to buyers caught in the middle of this scoring transition!

And with credit scores now being so closely tied to FICO scores, guess what that is going to do???

For more thoughts on this subject, go to: http://www.inman.com/buyers-sellers/columnists/dianhymer/will-shopping-multiple-lenders-hurt-credit#comment-8335