Archive for November, 2008
How About A 30 Year Fixed at 5 percent?
November 26th, 2008 Categories: Mortgage News, Real Estate News
What was hoped to have happened in October was finally announced Tuesday. The Federal Reserve plans to buy up $100 billion in direct debt from Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. They are also going to buy up to $500 billion of mortgage backed securities. The Fed said that “the $600 billion effort to support the mortgage market was being taken to reduce the cost of home mortgages and increase their availability.” 
So what does this mean for the mortgage market? Well, firstly, Fannie Mae and Freddie Mac will be able to unload some underperforming loans thereby freeing up more money to lend. Mortgage rates for conforming loans dropped dramatically on this news, almost 0.5%, down to about 5.50% with no points for a good quality borrower. By the way, that is for a 30 year fixed! Better yet, 30 year fixed rates of 5.0% are now attainable…and only for a 2 point cost. Last week at this time, more like a 5 point cost.
What does this news mean from a buyer’s standpoint? The payment for a loan of $400,000 at 6% equals $2,398 per month. Buy down the rate today to 5.0% and that same loan only costs $2,147 per month. Or, keep the same payment of $2,398 and be able to afford $446,700 at 5.0%. Remember the 2009 San Diego County conforming loan limit of $546,250? The payment at 5.0% is only $2,932 per month!
This rate drop dramatically increases purchasing power, but it also opens many doors for those looking to refinance. I have spoken with several clients over the last few months who were hesitant to give up their 5.75% to 6.25% adjustable rate mortgages, many of which are interest only loans. The new, lower rates now allow these folks to switch to 30 year fixed loans with only minimal payment increases…the difference will now be going to principal.
Are you pre-approved, but for an amount that is too low for where you want to live? If so, contact your lender (or me for that matter) to see how much more you can afford. An extra $20,000 or $30,000 in sales price can go a long way in some neighborhoods and this goes for FHA and VA buyers as well, since those rates dropped too. If your lender went out of business or just simply cannot be reached, please feel free to call me at 760-500-1919 for more information.
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FHA Loans – Down Payment, Reserves and Mortgage Insurance
November 15th, 2008 Categories: Mortgage News
This is the fourth and final post in a series that deals with important aspects of FHA financing.
- The first post provided an overview of the program.
- The second post detailed FHA credit requirements
- The third post discussed the income and employment requirements.
- This post will discuss the down payment and asset requirements necessary to obtain an FHA home loan.
Minimum Down Payment
In today’s challenging market, this is probably the most attractive feature of the FHA home loan – the minimal down payment requirement. For years the minimum requirement has been 3% of the purchase price. Effective January 1, 2009 this will increase to 3.5%, still a great deal especially for first-time homebuyers. This benefit is enhanced further by the flexibility allowed for the source of those down payment funds, as discussed below:
Reserve Requirements
Reserves are funds that a buyer has “left over” after purchasing the home. Most conventional home loans require enough reserve funds to cover at least two months of mortgage payments including property taxes, insurance, mortgage insurance and home owner’s association (HOA) dues if required.
FHA financing does not have a reserve requirement if purchasing a 1 or 2 family property (a 3 or 4 family property requires at least three months of reserve funds).
Acceptable Sources of Funds
- Borrower’s depository funds – Funds owned by the Borrower in bank accounts, stocks and bonds, Certificates of deposit, retirement accounts such as 401k plans
- Gift funds – Can come from a wide variety of sources, including family members, a close friend with established close ties to the borrower, an employer or labor union, charitable or non-profit organization, government agency or a public entity such as a city through a homebuyer’s assistance program. A couple important caveats: the gift funds must be thoroughly documented and provide a clear paper trail. Depending upon the source of the gift funds, such documentation will include a detailed “gift letter”, copies of cancelled checks and bank withdrawal slips or evidence of bank wire transfer. There must be reasonable evidence that the qualified donor has the financial ability to give the gift. As of October 1st, 2008, funds from certain non-profit organizations which are matched by donations from the home seller can no longer be gifted to the buyer
- Sale of existing home – proceeds from the sale of an existing home may be used to purchase a new home with FHA financing
- Sale of personal property – the sale of a car or other personal property is acceptable as long as the funds can be paper trailed to the sale
- Cash or “mattress money” – this requires a written explanation describing the source of the cash, how it was accumulated and how long it took to accumulate. Such cash accumulation must make sense for the borrower, such as not having a checking or savings account or credit accounts.
- Commission from sale of property – acceptable if the borrower/buyer is a licensed real estate agent and entitled to a commission from the sale
Mortgage Insurance
A lesser appreciated, but very vital benefit of FHA financing, has to do with mortgage insurance, or MI. Until recently, it was generally easy to avoid having to pay for mortgage insurance when purchasing a home with less than 20% down payment. This was accomplished by getting a second mortgage to “piggy back” with an 80% first mortgage. Thus a qualified buyer could buy a home with little or no money down by obtaining two mortgages. In the reality of today’s markets such second mortgages are all but non-existant or exorbitantly priced.
The only remaining option for a homebuyer with less than 20% for a down payment is to pay for mortgage insurance. In certain areas such as California, most companies that provide such insurance have limited the maximum coverage to 90% (or less) of the purchase price. In addition, they have tightened their underwriting guidelines and it is indeed more difficult to actually qualify for the insurance.
Enter the FHA home loan. It is generally considered easier to qualify for MI under the FHA and it will go to 96.5% of the purchase price. In short there is a significant portion of the home-buying population who have no other option than FHA financing just for these two reasons alone.
In a Nutshell…
FHA financing may not necessarily be the best fit for everyone in the home-buying market. However, these hallmark features of the FHA home loan – minimal down payment and reserve requirements, flexible sources of funds and availability of mortgage insurance – are far and away the primary reasons that many home buyers, particularly younger first-time home buyers, seek FHA financing. It’s clear to see why.
Special Note: Pursuant to recent legislation addressing current housing issues, various departments of the Federal government are working on implementing new programs and expanding the role of the Federal Housing Administration (FHA) in dealing with these issues. As these programs are actually implemented and become available to consumers, look to PicturePefectSanDiego.com for new posts describing them in detail.
Read more articles and valuable tips about financing by Paul Gonzales
You can contact Paul at (800) 775-7334 or paulforloans@aol.com
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First Rate Service and Knowledge In A Tough Market Keeps Clients Happy
November 12th, 2008 Categories: Brookside Escondido, Escondido, Rancho Bernardo, Real Estate News
While some agents and companies are stepping back or stepping out of the real estate arena, some of us are finding an opportunity to diversify during this challenging market downturn. As an agent I am now working harder to provide the kind of service and presence that will provide my clients a much higher level of service. Building lasting relationships is my highest goal and and I achieve results, even in this tough market.
Listed are examples of TOOLS that I use to be more effective in building a relationship with a buyer/seller….
- Keeping tabs on housing inventory and setting up searches for each client is key.
- Informing a potential buyer/seller of changes in the market that are happening daily builds confidence in your relationship .
- Using the right tools allows me to know which types of listings a consumer is looking for and for recommending similar properties.
- I work closely with a Loan Officers who are knowledgeable and can provide buyers with information to help them decide how much they are able to invest in a property and how to begin the process.
- I use the internet, producing Virtual Flyers, the Real Bird Listing Publisher and Craigslist (just to name a few) to bring attention to buyers needs and my seller’s properties. I consistently show buyers and sellers that I DO have the right TOOLS and how I can benefit them.
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Commitment and hard work is important and really shines in a market like this one. Providing first rate service accompanied with knowledge will surely make you feel confident when using my services, and I hope to build relationships that are long lasting.
Here is to lasting relationships and VERY HAPPY Clients.
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