Lending changes

I mentioned in one of my previous posts (Down Payment Assistance Programs – are they at an end?)  that Down Payment Assistance was ending as of October 1st.  That is a federal guideline. 

Many of the lenders, knowing this rule was coming into effect, adjusted their guidelines early.  Several lenders no longer accept the Down Payment Assistance loans at all.

If you require down payment assistance and are looking to purchase a home.  You better do it quick.  Most of the lenders require you to be in contract and have your loan locked by the end of August. 


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Good Real Estate News on the front page of the paper

This weekend, on the front page of the Arizona Republic they actually shared positive news about the real estate market.  The housing market, priced under $350,000 is seeing lots of recovery.  We have a closer to normal supply of homes at just over 7 months.  Over the $350,000 we still have a 17 month supply.  My broker, Jim Sexton was interviewed for the article.

What is it about the magic number of $350?

Well the FHA home purchase amount in Maricopa county is about $355,000.  An FHA loan allows someone to purchase a home with 3% down and their closing costs. If you ask the seller to contribute to your closing costs, and/or down payment assistance programs (available until October 1, 2008) a buyer can purchase with little or no money down. 

Other conventional loans require 20% or more down payment.  So you can see why FHA loans are popular, and why homes are selling quickly in the acceptable price range.

Down Payment Assistance Programs – are they at an end?

On July 30th the President signed The Housing and Economic Recovery Act of 2008.  This bill will not allow FHA to insure any mortgage where the down payment comes from and 3rd party directly or indirectly.  That means programs like AmeriDream, and Nehemia will no longer be able to assist buyers in getting 100% financed homes.

Currently, and until October of this year, if you are purchasing a home and getting your financing thru FHA, you can have the seller contribute your 3% down payment, plus the processing fee, to a down payment assistance program, as well as have the seller contribute to your closing costs, allowing a home buyer to purchase with no money down. 

In plain English, if you, or anyone you know is considering purchasing a home, and requires help with the down payment, they will need to purchase a home by October first of this year.  After October, you will have to purchase a home the old fashion way.  With money down. 

You will still be able to have the seller contribute to your closing costs, not the down payment. 

Here is the Summary of the Housing & Economic Recovery Act of 2008.

  • One more thing to be aware of is the down payment required for an FHA loan on October first will go from 3% to 3.5%
  • In Maricopa county (Phoenix area) the FHA loan amount as of today is $346,250


Buying a Second Home?.. there are new requirements

A big thank you to Robyn Robertson and letting me know these details.  There are lots of seasonal residents here in McCormick Ranch, and many second home owners.  Many purchase with cash, but for those looking to do financing, knowing the requirements is important.  Her post Converting your Primary Residence to a Second Home or Investment Property

Fannie Mae is changing the policies for  qualifying for a loan when borrowers who currently own their  home and decide to purchase a new home and convert their old home to an investment or second home. The changes are

  1. The old property must have documented 30% equity,or there must be 6 months of reserves to cover the mortgages on both properties
  2. Rental income must be documented with a fully executed lease agreement and
  3. Receipt of security deposit from the tenant into the borrowers account.

These new guidelines go into effect on August 1st


FHA Rehab Loan 203k

There are lots of foreclosed homes that need more than just a little love.  They need work to be livable.  The standard FHA loan requires the property be livable, no broken windows, appliances in place, no bare cement floor etc. The FHA 203k loan allows for someone who has fallen in love with a house that needs work to still get a loan using the FHA guidelines. The FHA 203k loan is not new.  Some of the qualifications for it have changed making it easier to obtain today than in years past.  The 203k loan is part construction loan and part FHA.  It is designed to help with the purchase of a home that may need repairs or remodeling.  Here are a few improvements allowed.

  • room or garage additions
  • kitchen or bathroom remodels
  • roofing and landscaping
  • pool repair (up to $1500)
  • electrical upgrades

The cost of repairs are rolled into the loan amount, and the home is appraised as if the repairs have been complete.   The 203k allows for up to $35,000 in repairs with a min of $5,000 to qualify.  The total loan value including repairs can not exceed the FHA limit (346,250 in Maricopa County till the end of this year)

The Federal Housing Administration (FHA) is a division of the Department of Housing and Urban Development (HUD).  HUD was created to make affordable financing readily available to qualified buyers. Also check out HUD’s info on the 203k as well as the FHA site on the 203k.

A big thank you to Robyn Robertson for her sharing this with me.

That darn FICO & changing mortgage requirements

If you don’t know already the Mortgage world is in an upset.  With requirements for loans having gone so wild, where all you needed was a pulse to get into a home… they have now swung back hard the other way.  The ‘golden rule’ was 20% down and you get the best pricing, no Mortgage Insurance.  That was what every buyer really wanted.  It is what created the 80/20 loan combo as well as the 80/10/10 and many more variations for people with less than 20% down. 

The Mortgage world has created a new ‘gold standard’.  30% down and 70% loan.  Ouch! 

Let me explain what this means.  First when you apply for a conventional loan there are many things that go into determining the interest rate you will be paying.  You credit score, or FICO is first and foremost the biggest contributing factor.  Then the amount of the loan, for example, if your loan amount is less than 100k, you get a little bump in the rate you pay.  Then the % of the loan to the value of the property or purchase price.  Where 20% down was the magic number, now it is 30% down if your credit is anything less than perfect.  The difference between someone with a 720 credit score or higher and someone with a 620 credit score is 2.75%.  So if the interest rate was 6% for the A+ credit of 720 or higher, the same loan would be at 8.75% for the person with a 620 credit score. 

The moral of the story, keep your credit score up!  If your credit score is low, put as much down as possible (your goal is 30%) .  Or purchase a home using an FHA loan (in Maricopa county till the end of 2008 that is a purchase price of about 350k). 

Appraisals and your Mortgage

I went to a training today given on appraisals and your mortgage.  

Lenders, as a reaction to their losses in the sub-prime markets, are re-assessing their risk and making not only your loan qualification guidelines more strict but the guidelines for appraisers as well.  Maricopa county has been identified as a declining market. Our home sales prices have dropped in the county, with some areas hit harder than others.  This means the Appraiser is having to assess the sold price of the home down the street from 6 months ago with adjustments added or subtracted in for the market changes.  They are also required to have information about the current listings, the days on market and compare very similar properties.

The lenders have the same access as you to checking out approximate value: websites like Zillow offer Zestamates, but don’t consider all of the specifics of condition, location, upgrades etc in a home.  The Appraisers job is to look at all of the factors with each home and determine value. Two homes on the same street may be valued at very different amounts due to condition, lot size or position in the community. 

Foreclosure properties figure in as well.  If there is just a few in an area, the effect may not be as great to property values, they are considered in the appraisal process separately and adjusted.  If there are lots of foreclosures in the area, the foreclosures start to weigh in more heavily and effect the values of the community. 

Why share this with you?  When considering a home, or a community look at the whole community, not just the home as an individual house.  Your investment is in your home, and your home is in the community.  Once again, the magic words in real estate,  Location, Location, Location. 

Thank you Robyn Robertson of Suburban Mortgage, Anita Bell with TSA Title, and Scott Wortendyke with Instant Certified Appraisals for  the class.

Understanding Credit

How a credit score is calculated is a mystery to many people.  Here are a few basics on understanding credit, and how your score is calculated.

Payment history is responsible for about 35% of your score. Make on time payments.

Outstanding balances are responsible for about 30% of your score.  Meaning how you manage your debt.  How much debt do you have in relationship to how much credit is already available to you?  If you have a credit card with a $1000 credit limit, it is best to have no more than 50% balance or $500 on that account. It is even better if you only have 40% or $400 on that account. 

Types of credit for a good balance;  The ideal is a mortgage, credit card and car payment.  You want to have at least one year of payment history with each of your accounts or credit lines.  If you have all brand new accounts, they will need on time payments, over time to bring your score up. 

Another 10% of your score is based on inquiries.  Each time you apply for a credit card, cell phone, or any other business that requires your social security number, they are all checking your credit.  Too many times and your score could be impacted by as much as 2 -50 points.

As for the rest, well there are still a few mysteries in the world.  Make your payments on time, don’t max out your accounts and don’t have too many accounts (that can hurt worse than too few).