My industry has seen more changes in the last 20 months than I have seen in the last 20 years. I just take all of the changes that come down the pike and I roll them into my business and move on. I usually have a pretty sunny disposition but sometimes it just gets to me....
A big question these days is what loan to use and why. There is a basic rule of thumb here that if you want to put less than 10% down, then FHA is a better loan for you and if you want to put 10% down or more, than a conventional loan is a better deal. Rules of thumb are guidelines and I find myself feeling like a ping pong ball sometimes in conversations with clients. In order to avoid this feeling, I try and gather as much information as I can before giving advice. Here are some subtle differences:
FHA is an insurance program; if you meet the criteria then your loan is approved and able to be insured by FHA. This means that you pay an upfront Mortgage Insurance Premium (UFMIP) and monthly MIP as well. FHA loans allow you to have lower credit scores, lower down payment, higher debt ratios and one set of guidelines and one underwriter on your loan. A special FHA loan even allows you to finance the fix up costs on that home that the Realtors advertise as "Needs TLC" or "Contractor Special".
Conventional loans are stricter on debt ratios, credit scores and down payment. If you put between 10% and 20% down then you will have Private Mortgage Insurance (PMI) and that is managed by another company with their own stricter guidelines than the loan itself. This makes sense because PMI insures the lender against losses just like FHA but they are a private company and they decide what they will and won't accept. Many times we are able to approve a conventional loan but not able to obtain a PMI approval and so we either have to have the client put 20% down and avoid PMI altogether or switch to FHA. Are you feeling like a ping pong ball yet?
As a mortgage professional I need to analyze my client's needs and qualifications and match them to the right loan program. If I don't choose the right mortgage program from the outset, we may lose a lot of time and money. If we get a conventional appraisal and we have to switch to an FHA loan, somebody ends up buying two appraisals. Of course, I don't' want to charge clients for appraisals they don't need at $400 a pop but I also don't want to pay for unnecessary appraisals myself (it's just bad business).
So when a client calls me and asks me "What is your rate?" and I tell them that is the wrong question to ask, usually the next question is "What is the right question?" and the answer changes depending on what I have been dealing with that day and my general mood but usually the answer is something along the lines of; " Can you help guide and educate me through the loan process in this day and age?" or "How many purchase transactions have you closed in the last 90 days?". The bottom line is that you want someone who is a full time professional who is closing loans in this market and someone who comes highly recommended by real estate agents and someone that you feel has your best interest at heart and is working from a place of honesty and integrity.
So to find the right home, it is always Location, location, location and to find the right home loan it is always question, question, question.
Happy House Hunting.
Please email or call me with any real estate and mortgage related questions. I am happy to answer you and it may become the topic of a future article.
Historically, Sebastopol and most of the north bay home prices have been too high for FHA to make sense. Today, we have incredibly low rates combined with low home prices and the FHA loan limits is $662,500 in Sonoma County. The limit is as high as $729,750 in Marin and many other bay area counties.
Remember kids, this is a loan that has been around since 1938, this is not a new program. FHA loans are guaranteed by the Department of Housing and Urban Development (HUD) and it is one of the few remaining loan programs allowing a very small down payment-specifically, 3½% of the purchase price.
FHA loans have opened the door to home ownership to millions of deserving people since being introduced and I have been closing them for over 17 years.
FACT: FHA loans are exempt from the requirements of the Home Valuation Code of Conduct (HVCC). We use certified, dependable and trustworthy appraisers, professionals we have known and worked with for years. We avoid the risks and uncertainty associated with unknown, possibly inexperienced appraisers from the HVCC "pool."
FACT: The requirements for the property are reasonable. An FHA-certified appraiser performs an expanded inspection of the property, but only for obvious health and safety issues. A termite clearance is required only if the appraiser notes specific evidence of termite damage, or if there is special notice of termite work in the purchase contract.
FACT: FHA underwriters tend to be more experienced than their conventional counterparts. They operate under common-sense guidelines and issue approvals with fewer loan conditions
We are a nationwide FHA Full Eagle direct lender, we can close on time. If you have any questions or concerns, please email or call me for more information.
Some of my fondest memories are when I get to wander down a country lane to a friends house and just hang out, listen to music, have nice conversations while eating and drinking and looking at some really great art. Today was even more fun because I got to do this over and over and we did not even know half of the people we dropped in on and we were welcomed like old friends.
I am talking of course about Art Trails which just wrapped it's 24th year. I am sorry to say that it is over, today was the last day but you should put it on your calendar for next year because it is a lot of fun and a great way to get next to some great art and some great artists right in your own back yard.
What are you looking down here for? The answer is in the title. Interest rates are UP! Just a few short weeks ago, we were locking loans at 4.75%, I even had a client buy down and lock in a rate of 4.375% for a 30 year fixed rate mortgage. It has been a good year for refinances for many people. The market has shifted to closer to 5.5% for a 30 year fixed and about 5% for a 15 year fixed currently. You can go to www.BankRate.com and on the top right of the page it will tell you the overnight averages that people are actually locking in and is a pretty true snapshot of the market at this moment. The funny part to me is that a little farther down the page you have a company advertising that they can get you 4.625% for a 30 year fixed rate...... LIARS!
Folks, the market changes every day, every hour and nobody knows exactly where interest rates will be tomorrow. I study Mortgage Backed Securities and FNMA and GNMA in real time every day so I can have an educated guess and offer my client's decent advice when obtaining a new mortgage. Some of my clients locked in because the rates offered at the time worked for them and some of my clients waiting for the market to improve may have to wait a little longer or may have missed the boat completely.
This recent bump in rates may have left some people out in the cold as far as refinancing goes and it may come back in the next few weeks. The reason that rates went up so much recently is that the economy seems to be rebounding a bit and the first sign of an economic recovery with regards to interest rates is short term volatility followed by higher rates. It is hard to tell if this is the first sign of an economic recovery or simply a short term trend.
We have to remember that the government is buying mortgage backed securities in an effort to keep rates low. It has been working fairly well all year and let's face it, rates are still low. The problem is that other investors are not so excited about investing in mortgages if they can get a better return in the stock market or even other bonds. All of this leads me to believe....
What if the Hokey Pokey IS what it's all about?
So, what does this mean to the average consumer and what is going to happen to interest rates? Remember I said we would start with volatility..... they may be swinging back down if investors start to worry about the economy and put their money back into Mortgage Backed Securities. If you are looking to refinance, it is just a math problem - it either makes sense or it doesn't. If you are looking to buy a home, this recent bump in rates may force you to look at a less expensive home to keep your payments down or it may simply mean that your payment won't be quite as nice as you had hoped.
For someone looking to buy a $400,000 home with 10% down, The principal & interest payment at 4.75% would be $1,848 and if you change the rate to 5.5% the payment would be $2,012 so it can make a big difference in your monthly budget.
I welcome questions about home loans and the real estate market in general. Please let me know what you want to hear about in future articles.
Hans Bruhner, CMPS is the branch manager for Benchmark Mortgage. If you have a question, please contact Hans at (866) 385-1650 or hans@hansblog.com or stop by www.AskTheLoanMan.com .
One little recurring theme in my articles over the last 14 months has been that FHA loans have become increasingly more useful in this market. In the last round of stimulus rules, FHA went back to 2008 loan limits.
That means that in Sonoma County, the conventional loan limit is $520,950 but you can borrow up to $662,500 with FHA. In Marin County you can go to $729,750 on an FHA and you are limited to $625,500 on a conventional loan. FHA did not work well in the north bay for decades and now it is almost the loan of choice and I happen to be an FHA expert - woo hoo!
In many parts of the San Francisco Bay Area, the FHA loan limits are $729,750 where conventional limits are limited to $625,500. Those are the highest limits out there folks and we see this all over California. To look up the actual limits in your area, you can do so directly at:
https://entp.hud.gov/idapp/html/hicostlook.cfm
Realtors and home buyers have not had much experience with FHA in the San Francisco Bay area. I started my career in Sacramento and 65% of my business used to be FHA. From 1995 through 2007 after moving to Sonoma County I did a whopping total of 2 FHA loans. In 2008, I did a ton of them and I realized that I am an expert on these loans and I rather enjoy FHA.
One of the things I love best is destroying myths about FHA. Here are a few:
1. You have to get a pest clearance - WRONG!
2. They are very strict - WRONG!
3. There are certain fees the seller has to pay - WRONG!
4. You have to be a first time home buyer - WRONG!
Stop by my web site and look at the video titled FHA for Realtors. This is good for agents and home buyers and it can be found here:
FHA loans are great loans and one more little tidbit that conventional lending should follow. If you keep your payments up, you can do streamline refinance without an appraisal or verification of income or employment. That means that if you pay your mortgage on time and you can get a better rate, you are approved. This would really help a lot of upside down homeowners today if this was applied to FNMA and FHLMC.
Remember to Ask the Loan Man!
Hans Bruhner, CMPS is licensed in CA & HI. If you have a question, please contact Hans at (707) 887-1275 or hans@hansblog.com or stop by www.AskTheLoanMan.com . First Priority Financial, Inc. is licensed by the CA DRE #00654852.
Back in January in this very blog I posed the question – Refi or Modify? You can imagine my thrill when I saw in the latest round of stimulus packages that President Obama not only had read my article but came up with some answers and he was fairly quick about it. On March 4th 2009 the guidelines were handed down to loan originators and servicers the new rules concerning loan modification and addressing some issues with refinancing. My mother will be so proud of me ; )
But seriously, there are new rules here and this is timely. In the new plan, there are bonuses paid to loan servicers for helping people modify their loans if they fit certain criteria. There are even stipulations that if the servicer helps someone who is not behind on their mortgage that they get a little extra cash (emphasis on little). It is effective right away and the banks still need a little time to digest the information and figure out how to implement the plan. If you want a copy of the document, email me and I will send it right to you. I do not help people with loan modification but I do help my clients with my advice.
The new rules on refinancing are designed to help people who do not have enough equity to get a regular mortgage. Normally if you owe $98,000 on a home that is worth $100,000 then there is no conventional loan available to you. The new rules will allow you to refinance your home under these circumstances even up to 105% of the current value. It is nice that they are helping people in this situation but there are plenty of people who owe even more than that. This program works for you if you currently have a FNMA or FHLMC loan only. I have links to web sites that will tell you if you have this type of loan. I also have the rules on this process and if you email me, I will shoot them over to you right away. If you want to do some digging on your own, the rules and basic outline is at www.FinancialStability.gov
I was speaking with a bankruptcy attorney; don’t worry honey, I was networking and gathering information for my clients….. And I asked him a very powerful question. I asked him if someone got into a Chapter 13 bankruptcy, could the court modify that person’s mortgage as part of the reorganization process? He lit up and told me 2 things:
1. If the person has a 1st and 2nd mortgage and they owe more on the first mortgage than the value of the home, the 2nd mortgage would be “stripped away”.
2. In some instances, if the 1st mortgage is higher than the value of the home, then that mortgage can be “crammed down”.
He further told me that these were fairly new rules and that he did not want to be quoted as the rules can easily change again. Of course, I am not an attorney and I am not giving legal advice here. I am simply suggesting that you may want to speak with a bankruptcy attorney if this situation might be a fit for you. DON’T call or email with questions about bankruptcy.
I welcome questions about home loans and the real estate market in general. Please let me know what you want to hear about in future articles.
Hans Bruhner, CMPS is licensed in CA & HI. If you have a question, please contact Hans at (707) 887-1275 or hans@hansblog.com or stop by www.AskTheLoanMan.com . First Priority Financial, Inc. is licensed by the CA DRE #00654852.
You do! If you are looking to buy a home today or you are a real estate agent working with buyers OR sellers, you need these acronym loans. Ok, Ok, I need them but what the heck are you talking about?
FHA, VA, FNMA, FHLMC, USDA, PERS, STRS, CalHFA, CHDAP, DPA etc. are the acronym loans I am talking about. I probably left some out but you get the picture. I just threw the last 3 in for fun, they aren't so hot today so I am not even going to talk about them.
I started my career in 1989 in Sacramento CA and we used all of these loans back then and that is when I learned how to read tax returns and calculate down payments for FHA loans and how to interpret a credit report (without a FICO score) and write a cover letter to an underwriter...... Stated income loans did not exist, option arms did exist but only for investors and the really savvy borrowers.
Today, we have gone back to those simpler times but they are not quite as simple. We have the government involved and looking over our shoulder because of the way our business has been done for the past 5-7 years and we have loan officers leaving the business in droves (BYE!, good riddance...). I am being a little harsh but I am really glad to see the bad and the unprofessional loan officers go. I know that there were also good, hard working ethical loan officers that are having a tough time in this market but I digress.....
FHA - This is a great program that has been around since just after the great depression. It is designed with first time buyers in mind. You do not need to be a first time buyer to get an FHA loan but you don't need perfect credit or job history, you only need 3.5% down payment and it is a pretty reasonable loan. Moving to Sonoma county in 1995, I rarely did an FHA loan until 2008 when the values came down and the loan amounts went up and it made perfect sense. I was glad that I had started my career doing a ton of these loans and I feel very comfortable with all of the rules and regulations and paperwork also.
FNMA & FHLMC - I lump these 2 together because they are almost interchangeable. They are commonly referred to as Fannie Mae and Freddie Mac and they were designed to buy home loans on the secondary market to keep mortgage money flowing. They were pseudo governmental agencies until quite recently. These days, they have even more government than they ever have. The bottom line here is that these 2 agencies write the rules for conventional or conforming loans. They tell us the limit to which they are willing to buy these loans and the rules we must follow to get the loans approved.
USDA - Yes folks, the same people that put a safety seal on your beef is in the home loan business and they have been for a loooong time. The goal of this organization id to get average folks in rural communities into basic housing. You need to make 115% or less of the area's median income in order to qualify for the program but you also need to make enough money to qualify for the house payments. If you qualify and your home qualifies for this program, then you can get a mortgage with NO MONEY DOWN and no mortgage insurance. If this loan fits, it is a good deal.
VA - This is a Veteran's Administration loan and is available for veterans and their spouses. This program does not have income limitations but you do need to qualify for the house payments and fit within the VA's guidelines. This program also allows for NO MONEY DOWN and no mortgage insurance and so if it fits, it is a great deal for veterans. It does require a pest report and clearance and that can be an issue in some markets.
PERS - having started my career in Sacramento, I am very familiar with this one. This is a loan guranteed by the Public Employees retirment System. This can be a good loan for a PERS member and it is basically very much like a conventional loan and they have little perks and bonuses available to PERS members. Good stuff but a very specific clientelle here.
STRS - Much like PERS, this is a program run by the State Teachers retirment System. It is also basically a conventional loan for teachers in California. There is a very cool feature in that you can get an 80% 1st mortgage with a 17% 2nd mortgage from STRS and just 3% down from the teacher buying the home. STRS will let us qualify the teacher without counting the payment on the 2nd mortgage in their debt ratios and they won't even make you pay on the loan for 5 years. This is great for the first 5 years but you don't want to let this one sneak up on you. The beauty of having a 1st and 2nd mortgage is that you can avoid mortgage insurance altogether and so this is a better loan than FHA for many teachers.
That is basically it. In today's market, many people think that we just have plain vanilla loans and that is basically true but we do have several different toppings for those loans and you need to be working with a professional loan officer who understands these loans and has access to them all.
I have a business coach who told me about facebook and that I should get on there and do some social networking and I did not listen to him....
I have a friend who got on facebook and loved it and wanted me to get in there too and so I did. I started cruising around, finding old friends and sharing photos and letting it all hang out. That is when I remembered my business coach and how he thought I should be using the site. My coach would not be pleased with me sharing photos of my tattoos, sordid tales from college and the like. Just FYI, I live a pretty much PG life so it's not that big of a deal.
I then realized that this is what I wanted to do on facebook and so I was going to do it. Honestly if one of my clients wants to add me as a friend, that is Ok with me but it is not about business here..... and it is about business as well.
People want to work with someone they can relate to. If I am speaking to a teacher I am happy to share that my mom was a teacher and my wife works at the local high school. If I find a common bond between me and my client, it strengthens the client relationship at the same time. For me, that means that I am who I am on facebook, period. Of course I have rock posters lining ALL the walls of my office so this was already my philosophy.
If you are thinking about using facebook for business, in my opinion, you just can't be that transparent. I think that once you share real interest, real political views and photos of your family that you will find people who relate to you and once they find out you are a mortgage broker or real estate agent, that makes it that much easier to choose you when they need your service.
For me, the bottom line is be yourself, have fun and don't be afraid to let people know what you do.
Ok, things are good, you have some money in the bank and a stable job and you want to go buy a house and take advantage of this great real estate market. The trouble is that you won't make much money on your current house because of the very same market.
Hey! I have an idea. You can rent out your current home and move into the next home and you can wait and see how the market treats you over the next few years. Heck, if you sell within 3 years you still qualify for the capital gains exclusion because you have lived in that home as your primary residence for 2 of the last 5 years.....
Not so fast! It is a good idea, it does make sense. The problem is that fannie mae and freddie mac instituted new policies because they are operating from a place of fear. At the end of last year, they created a policy that says that if you move out of a primary residence and plan to rent it, that you need to have at least 30% equity in that home as a condition of getting the new loan. Their fear is that people will move from one house to the next and then let the original house just go back to the bank. There is only one exception and that is if you can afford to make the payments on both houses and maintain an adequate debt ratio then they don't care how much equity you have in that house.
I have run into this several times and a while back, I switched someone over to an FHA loan to avoid this issue and we closed the loan. 2 weeks after I closed that loan, FHA instituted a similar ploicy and they need to see 25% equity in the home yoiu plan to rent.
The landscape is changing rapidly, now is the time to work with true professionals.
Towards the end of last year, Fannie Mae announced that they would not make a loan on investment property to anyone who had 4 or more mortgages. This was quite a blow to many people who are investors in real estate. The new rule did not care hoe many mortgages the borrower had when lending on their primary residence. Of course, Freddie MAc followed suit soon afterwards and they may here as well.
It looks like they re-thought this new rule and are almost repealing it. At least they have made some changes that should be positive for investors. here is the wording from Fannie Mae:
To support prudent lending for housing investment, Fannie Mae is changing our current limit of four financed properties per borrower. We will allow five to ten financed properties per borrower, with certain eligibility and underwriting requirements, including a 720 minimum credit score and 70-75% maximum LTV/CLTV/HCLTV (depending on the transaction and property type). The requirements apply to any loan being delivered to Fannie Mae, regardless of whether Fannie Mae is the investor on the borrower's other mortgages.
This is good news for investors. As always, call or email me if you have questions or scenarios.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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