John Beckett's Real Estate Blog

Even though the first-time homebuyer tax credit ended April 30, there are still many ways the government provides help and incentives to get first-timers into the housing market. With all mortgages, the interest rate you get will depend on your credit score and market rates at the time you buy.

1. FHA-insured loans
The Federal Housing Administration doesn’t make loans, it insures them. You buy the insurance and the government sets the rules and repays your lender’s investment in case you default.

The rules:

• Down payments are as low as 3.5% (example, for a $230,000 home, you’d pay $8,050 in cash).
• Your FICO credit score  must be 580 or above.
• Find more information at HUD.gov or read “FHA loans get dramatically costlier.”

The good:

The requirements are pretty easy, so newbies can qualify.

• If you haven’t yet built a strong credit score – and don’t have a record of late payments, missed payments or a foreclosure – you can use “nontraditional” credit sources, such as cell phone or other utility bills, rent payments or medical bills, to qualify.
• The FHA limits extra charges (“points” and fees) for things such as title insurance and settlement and escrow fees. These can add up, otherwise.
• You can use gifts — from family, for example — or a local government loan or grant for your down payment. (With conventional loans, it has to be all your own money.) You could conceivably pay nothing for the down payment.
• You don’t need the big bank reserves that conventional loans require.

The wrinkles:

• You have to buy mortgage insurance. C’mon, you didn’t really expect all this for free, did you? And you’ll need a chunk o’ change upfront to close the purchase.
• Funky properties are out. On this, the government can be fussy. The property has to be in “turn-key” shape with no major repairs needed so you can move right in. Even chipping paint can sour a deal. But the times are with you: In markets where sellers far outnumber buyers – which is most markets these days – sellers may be happy to make the repairs in order to sell the place.
• If the property has been expanded or has an addition, the FHA wants to see local government permits for the work.

2. FHA 203K loan
This type of FHA loan lets you purchase and repair a fixer-upper or foreclosure property. We’re not talking spa bathrooms and a haute-cuisine kitchen. The loan is for replacing or repairing basic home systems such as the roof, furnace, plumbing, wiring and floors.

The rules

• The buyer finds three licensed contractors who submit bids for repairs.
• The lender examines the bids and rules out any that don’t meet program guidelines.
• The buyer hires one of the approved contractors.
• Repairs are done in phases. After each phase, a lender’s inspector examines and approves or rejects the work.

The benefits:

• Uncle Sam insures your mortgage, and loans you money for authorized repairs. For example, a lender may offer you — based on the appraised value of the property you’re buying — a mortgage of $100,000 plus a $50,000 loan for repairs.
• You repay both loans with a single monthly payment.

The wrinkles:

• The rules are strict to protect buyers.
• Repairs must all be done before you can take possession.

3. City, county and state grants and loans
Every state has a housing finance agency. These disperse federal, state and local money and oversee programs to help make housing affordable.

The benefits:

• Many agencies have first-time-buyer assistance programs — grants or loans.
• The amounts vary greatly from state to state, running from as little as $2,500 to as much as $150,000. They are mainly targeted at low- to moderate-income individuals and can sometimes have restrictions on where you purchase. These loans can be used to subsidize the loan you are obtaining from your lender and give you more purchasing power.

The wrinkles:

• You have to get in quick because these programs are not well-funded. It’s first-come, first-served, and when they run out of money they don’t have any more to lend.
• City, county and state programs may target certain low- to moderate-income neighborhoods for improvement, limiting your purchase to these areas.
• Some programs are offered only to low-income buyers.

Other options
4. VA loans. If you’re a veteran, you might qualify for a VA Guaranteed Home Loan from the Department of Veterans Affairs, with no down payment — although you must buy mortgage insurance.

5. Navy Federal Credit Union. The Navy Federal Credit Union is offering no-down-payment mortgages of up to $650,000 for qualified members. Department of Defense military and civilian personnel and their families can join the credit union.

6. Conventional loans
Private lenders, including credit unions, banks and mortgage brokers, vary in their fees and services. It pays to shop around. Keep in mind:

• If your down payment is less than 20% of the property’s cost, you’ll need to buy private mortgage insurance.
• You won’t need to buy mortgage insurance if you put 20% or more down.

Need help deciding if you should get a conventional loan? Read: “Which mortgage is right for you?“

Don’t hesitate to ask for help

Before you go home shopping, you can get free housing counseling from a nonprofit agency approved by the Department of Housing and Urban Development call 1-800-569-4287. Studies show that a borrower who obtains housing counseling prior to purchasing is less likely to be foreclosed on.

Read at: http://realestate.msn.com/article.aspx?cp-documentid=24119778

The foreclosure crisis hit a new peak in the first quarter, as banks took back the largest number of properties to date. The number of homes entering REO status (short for “real estate owned” by a bank) climbed 35% to 257,944 — the highest quarterly total ever — from 190,543 in the first quarter of last year and 9% from the previous quarter. The increase comes as lenders seized more property that couldn’t qualify under the Obama administration’s Home Affordable Modification Program (HAMP). “There have been delays throughout the system, and it has taken longer for properties to go from delinquency to default,” says Rick Sharga, senior vice president at RealtyTrac. Once rejected for HAMP, however, these properties are now moving to foreclosure at an accelerated pace, Sharga says.

More properties moving through pipeline

Foreclosure filings — from notices of default to bank repossessions — were reported on 932,234 homes in the first quarter of this year, a 16% increase from the same period last year and a 7% jump from the previous quarter. And the pace accelerated near the end of the quarter, with foreclosure filings reported on 367,056 properties in March, an increase of 19% from the previous month and the highest monthly total since RealtyTrac began issuing its report in January 2005. Foreclosure auctions were scheduled on 369,491 properties during the quarter, the highest quarterly total since RealtyTrac began compiling its report. “There have not been a lot of households that have been successful under HAMP,” says Gary Painter, director of research at the University of Southern California’s Lusk Center for Real Estate. “It’s likely that many of the people who could be helped have been helped.” The good news is there doesn’t appear to be a huge wave of properties entering default.  In the first quarter, 304,799 properties received default notices, an increase of just 1% from the previous quarter and a decrease of 1% from the same time last year. Default notices have dropped 11% from their peak in last year’s third quarter.

Troubled states

Nevada continued to have the highest foreclosure rate in the quarter — four times the national average — with one in every 33 households receiving a foreclosure filing, followed by Arizona, Florida, California and states where employment has plummeted, such as Utah, Michigan, Georgia, Idaho and Illinois. Foreclosure filings were reported on 34,557 properties in Nevada during the first quarter, a 15% increase from the previous quarter but a 16% drop from the first quarter of 2009. Foreclosure filings in Arizona were reported on 55,686 properties — one in every 49 households — a 22% increase from the previous quarter and a 13% increase from the same time last year. Florida posted the third-highest foreclosure rate, with filings recorded on 153,540 properties — one in every 57 households — a 7% increase from the fourth quarter and a 29% increase from the same time last year.

Sitting on delinquencies

Just how many foreclosures move through the foreclosure process and when banks sell them will be key factors in how much more real-estate prices could fall before they recover. Most of these bank-owned properties are not making it onto multiple listing services, analysts and brokers say, despite banks having more of them to contend with. “We have about 860,000 REOs in our database, and only about 30% of them are available for sale on the MLS,” Sharga says. “That means you have another 550,000 to 600,000 that have yet to hit the market.” By keeping this “shadow inventory” off the market, banks are keeping prices unnaturally high in this soft economy, says Leo Nordine, a Los Angeles-area broker specializing in REO properties. “[Lenders] want to keep postponing them for as long as they can,” Nordine says. “Prices have stabilized” in many areas because banks have kept these properties off the market, he says, adding that banks will likely continue to do so until the economy picks up again.

A long, painful recovery

Meanwhile, foreclosure prevention efforts don’t appear to be helping a significant number of borrowers. While 1.4 million homeowners were offered trial modifications under HAMP through the end of March, just 230,000 homeowners had their modifications made permanent. That’s a drop in the bucket compared with the 5.5 million delinquent loans Sharga says are on the books. Acknowledging this poor progress, the government revamped HAMP last month to provide additional mortgage assistance for unemployed job seekers, increase payments to second-lien holders and give some underwater homeowners the chance to refinance into loans backed by the Federal Housing Administration. This could slow the number of homes entering foreclosure, but it probably won’t make a huge dent in the number of properties being taken back by the banks. “Many people are so far upside down [in their home’s value] they are not even eligible,” says Helene Raynaud, vice president of housing for the National Foundation for Credit Counseling. And since HAMP is voluntary, lenders and investors are still deciding which properties they want to take back. “The government is really trying, but there are some issues of accountability and enforcement with servicers.” And, Raynaud says, there are some questions about how many of these modifications will end in redefault, given borrowers’ still-high levels of debt. Very few servicers are requiring these borrowers to get debt counseling, she says. Given these factors, economists expect a steady stream of foreclosures to hit the market for the next several years. But they don’t think it will derail a recovery. “I think we are very close to a recovering housing market,” says Celia Chen, senior director in charge of housing at Moody’s Economy.com. “We expect a slight decline and then flat prices until 2011.” However, Painter says you might want to brace yourself for a bit of a bumpy ride. “I think we are going to see upticks and downticks as the process happens,” he says. “But generally we are going to be stuck in place for a while.”

Read at: http://realestate.msn.com/article.aspx?cp-documentid=23875844

Sorry for the long blog today but I was asked about down payments today so I decide to explain how to come up with a down payment in detail. Not long ago, no-down-payment loans were the height of fashion for homebuyers. But now that lenders have tightened their standards, borrowers once again are expected to “put some skin in the game,” to use a favorite industry catchphrase. That “skin” refers to the borrower’s own cash, and it means down payments are definitely back in style. The chief advantage of a down payment today is simply the ability to qualify for a loan, as only a handful of so-called zero-down loan programs still exist. Yet down payments have other benefits, too. The more money you put down to buy a home, the smaller your monthly payments will be. A buyer’s down payment becomes a homeowner’s instant equity when the purchase closes, and that equity can be borrowed against with a home-equity loan or line of credit. Guidelines to qualify for these loans have become much stricter, however. Many first-time homeowners are “surprised by the true cost of owning and maintaining their home.” So they should keep some reserves rather than allocate every dollar to their down payment. Some loan programs require cash reserves for this reason.

Other benefits of a down payment include:

• Borrowing less money to buy the home.

• Shopping among more lenders, loan originators and loan products.

• Getting a lower interest rate.

• Paying less for mortgage insurance.

• Avoiding mortgage insurance altogether if the down payment is at least 20% of the home’s purchase price.

How to get a down Payment

Many homebuyers have difficulty coming up with a down payment. Here are a dozen ways to do it:

• Set up an automatic saving plan.

• Get a gift from your parents, grandparents, other relatives or friends.

• Sell a car, boat, motorcycle, collectibles or other assets.

• Liquidate stocks, mutual funds, savings bonds or other investments.

• Allocate your income tax refund.

• Take a loan from your 401(k) retirement plan and repay yourself with interest.

• Withdraw funds from your 401(k) plan, subject to taxes and penalties.

• Collect on a loan that you made to someone else.

• Get a bonus from your employer.

• Explore homebuyer programs for public servants if you qualify.

• Apply for a state or local government down-payment program.

• Use a private down-payment assistance program.

A down payment needs to be “sourced and seasoned. That means the lender needs to know how you obtained the funds and that you’ve had control of those funds for at least several months. Gifts and seller’s concessions are acceptable, up to the percentage allowed by the loan program, but borrowed money can’t be used as a down payment, as it is debt that has to be repaid.

Government-backed programs

Two government-run programs are designed to aid homebuyers who haven’t saved much for a down payment. The Federal Housing Administration offers mortgage insurance that allows qualified buyers to purchase a home with a 3% down payment, all of which may be a gift. The U.S. Department of Veterans Affairs offers a home-loan guarantee program that helps military veterans buy homes with no down payments. Down-payment programs run by state and local housing authorities offer grants and low-interest deferred-payment loans to homebuyers, though the restrictions can be pretty severe. Some programs require borrowers to live in a disadvantaged neighborhood. Others have income limitations, for example. The biggest problem tends to be that if you make enough money to qualify for a loan, you probably make too much money to get the down-payment assistance. Down-payment assistance programs offered by private organizations — Nehemiah and AmeriDream are two of the largest — convert money contributed by the seller into the buyer’s down payment. They are using the seller’s equity to fund a grant, which allows the buyer to buy with no money down. These programs serve a need for people who struggle to save a down payment, if the seller is motivated to contribute. But these programs are not without controversy. The down payment is of value only if the homebuyer can afford the monthly payments and whether someone who didn’t have the discipline to save a down payment would have the discipline to make the payments may be questionable. The FHA has tried, so far unsuccessfully, to ban the use of private down-payment programs in conjunction with FHA loans because FHA-insured loans using these programs have been shown to have a significantly higher incidence of default and foreclosure than loans not using such assistance, according to an FHA study. FHA loans made to borrowers relying on seller-funded down-payment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own down payments.

Down payment or closing costs?

Should homebuyers who have limited funds allocate more money toward their down payment or set aside some share of the total for closing costs? The simple answer is that the down payment should be the priority, up to at least 5% (or 3% for an FHA-insured loan) of the home’s purchase price. It doesn’t matter if they have the money for closing costs if we can’t show (the lender) that they have the money for the down payment.

If you’ve saved enough for a down payment but not closing costs, here are some options:

• Ask the seller to pick up the tab.

• Pay a higher interest rate in exchange for lender-paid closing costs.

• Wait to buy a home until you’ve saved more money.

If you want the seller to pay the costs, you should discuss that concession upfront before you sign a purchase contract, because payment of costs is a negotiable term that affects the seller’s net proceeds from the transaction. Borrowers can reduce or even eliminate their closing costs by paying a higher interest rate on their mortgage. This sophisticated strategy should be discussed with your loan officer, but the basic rule of thumb is that an additional 1/8% higher interest rate will net a credit against closing costs equal to 1/2% of the loan amount. For example, an additional 3/4% in interest might eliminate closing costs of 3%. The catch is that as your credit gets larger, it takes a bigger interest rate jump to achieve the same amount of savings. Instead of your total costs being 3% at one end of the spectrum and zero at the other end with a 3/4% higher interest rate, you could compromise on whatever combination of closing costs and interest rate you want.

Read at: http://articles.moneycentral.msn.com/Banking/HomeFinancing/HowToComeUpWithADownPayment.aspx?page=2