Category Archives: FHA loans

6 Reasons You Should Get Pre-approved For A Mortgage

mortgage-preapproval-01

(courtesy lighterside-staff-authorBy Lighter Side Staff  |  S.D. Shank )

Shopping for a home before getting pre-approved for a mortgage is like walking into a grocery store without a wallet. You may have the desire to buy, but you lack the ability. Let’s cover some basics…

What is a mortgage pre-approval?

In a nutshell, a mortgage pre-approval is written assurance from a lender or broker that you’re able to borrow money to purchase a home up to a certain amount. It’s based on the income, employment and asset documentation you supply at the time of application, in conjunction with your credit history.

1. Without it, most agents won’t work with you.

Makes sense, too. Right? Think about it: when you hire an agent, he/she will invest countless hours showing you homes over the course of your house hunt. If you were in their shoes, wouldn’tyou want assurance that your hard work would lead to a favorable outcome for both you and your client?

2. You’ll know how much house you can afford.

Getting pre-approved before you begin house hunting allows you to know how much house you can realistically afford. Knowing this narrows down the options and makes the selection process more efficient. Not to mention, it protects you from the unpleasant surprise of realizing the home you fell in love with doesn’t fit your budget.

3. It adds clout to your offer.

In many markets, homes attract more than one offer. If the sellers are weighing one offer against another, they may lean towards the one accompanied by a pre-approval letter. That’s because pre-approvals instill confidence that the buyer is financially capable of purchasing their home.

4. It could increase your negotiating power.

In addition to strengthening your offer when compared to buyers who haven’t taken this step, getting pre-approved may give you the upper-hand when negotiating the price. If the homeowner is eager to sell, they may be more willing to accept a lower offer from someone they’ve been assured is financially capable of purchasing their home.

5. It saves time.

Obtaining a mortgage is a lengthy process. Getting pre-approved ahead of time shortens the time between contract to close — this way you’re ready to proceed with finalizing the mortgage once you’ve found the home you want to purchase.

6. It carries more weight than a “pre-qualification”.

A pre-approval differs from a pre-qualification. With the former, the lender has actually checked your credit and verified your documentation to approve a specific loan amount (usually for a particular time period such as 30, 60 or 90 days). A pre-qualification can be useful as an estimate of how much you can afford to spend on your home, but it’s a less accurate indicator of your ability to purchase. A pre-approval always carries more weight.

 

Why Does A Seller Need to Know How I’m Financing My Purchase: What’s the Best Financing Method?

Puzzled LookAs a buyer, have you wondered why is what type of financing you use important? Or why does the seller need to know how you are financing your purchase? Or both?

The type of financing you use is important because, as a seller, you have the right to know how someone plans to purchase your property as well as to see evidence of that person’s ability to purchase. In addition, certain types of financing may not be accepted.

As a seller, you can choose what financing terms you will accept or will not accept. Most sellers are, of course, open to as many financing types as possible. However, in rare instances, specific financing types are sometimes prerequisites to being able to make an offer to purchase. For example, pending HOA litigation in a condo development would trigger this prerequisite. The HOA company will only allow sellers to accept owner occupied buyers with all cash offers or conventional financing.

Additionally, financing has its strengths and weaknesses. A general rule is outlined below recognizing there are always exceptions, and the seller has the final say.

STRONGEST
Cash
Conventional Loan
FHA Loan
FHA with DPA (Down Payment Assistance)
VA Loan
WEAKEST

As you can see, cash is at the top of the list – it is still and will always be king. The VA loan is at the bottom of the list and it is bitter sweet.

Nicknamed the “No-No Loan” the VA loan is structured to be a great tool and benefit to allow our vets to become homeowners. No down payment, no closing costs. The VA buyer isn’t even allowed to pay certain costs associated with closing the loan. Sounds great in theory, however, those costs get passed on most times to the seller who gets to say yes or no to paying them. In a competitive market, this offer gets placed on the bottom of the pile because the seller is netting the least from these offers.

The other loans in between have varying resemblances to the VA loan because they require the seller to give up potential proceeds to make the loan happen for the buyer.

Ultimately, the more cash the buyer puts in, the more of the risk they are taking. The less cash the buyer puts in, the less risk. To a seller, the seller would rather see more risk to ensure your commitment and to increase the possibility of closing.

The above is offered as a guideline and is not set in stone as to what will always happen. There are many other ways your broker/agent can ensure you are making a strong offer no matter what your financing. In all that you do as a buyer, choosing a savvy broker/agent will ensure you are making the strongest offer for your money and budget.

Home sales in a lull, median sales price stalls, inventory hovers over 3,400

OCTOBER  2014 RESIDENTIAL SALES STATISTICS

Sales volume decreased for the third straight month, closing with 1,375 single family home sales. This is down 1.5% from the 1,396 homes sold last month. Month‐to‐month since July, sales have decreased 1,548 – 1,428 – 1,396 – 1,375, respectively. Compared with last year, the current figure is down .8% (1,386 sales). Making up this month’s total are 1,208 Equity Sales (87.9%), 83 Short Sales (6%) and 84 REO sales (6.1%). For the month, REO sales remained the same, short sales increased 17.6% and conventional sales decreased 1.1%.

Of the 1,375 sales this month, 256 used cash financing, 654 used conventional (mortgage‐backed) financing, 312 used FHA (Federal Housing Administration), 89 used VA (Veteran’s Affairs) and 64 used Other* types of financing. The average DOM (days on market) for homes sold this month was 37, while the Median DOM was 23. These numbers represent the days between the initial listing of the home as “active” and the day it goes “pending.” Breaking down the Days On Market, there were 816 listings that sold between 1 – 30 days, 293 listings that sold between 31 – 60 days, 148 between 61 – 90 days, 69 between 91 – 120 days and 49 sold after being on the market for over 120 days. This breakdown, as well as types of financing, is show in the graphic below.

October 2014 Housing Stat

The month‐to‐month median sales price decreased 1.1% from $275,000 to $272,000. The current level is 7.3% above the $253,500 median sales price of October 2013. The current figure is up 70% from the January 2012 low of $160,000. When compared to the all‐time high ($392,750/Aug. ’08), the current figure is down 30.1%.

Active Listing Inventory in Sacramento County decreased 2.7% for the month to 3,434 listings, down from the 3,529 listings of September. Year‐to‐year, the current number is up (29.1%) from the 2,659 units of October 2013. The months of inventory remained the same at 2.5 months.

California 2015 Housing Market Forecast Preview

2015 Housing Forecast for California
2015 Housing Forecast for California

With more available homes on the market for sale, California’s housing market will see fewer investors and a return to traditional home buyers as home sales rise modestly and prices flatten out in 2015, according to the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) “2015 California Housing Market Forecast.”

The C.A.R. forecast sees an increase in existing home sales of 5.8 percent next year to reach 402,500 units, up from the projected 2014 sales figure of 380,500 homes sold. Sales in 2014 will be down 8.2 percent from the 414,300 existing, single-family homes sold in 2013.

“Stringent underwriting guidelines and double-digit home price increases over the past two years have significantly impacted housing affordability in California, forcing some buyers to delay their home purchase,” said C.A.R. President Kevin Brown. “However, next year, home price gains will slow, allowing would-be buyers who have been saving for a down payment to be in a better financial position to make a home purchase.”

“Moreover, prospective buyers should know that it’s a misperception that a 20 percent down payment is always required to buy a home. There are numerous programs available that allow consumers to buy a home with less down payment, including FHA loans, which lets buyers put down as little as 3.5 percent,” continued Brown.

C.A.R.’s forecast projects growth in the U.S. Gross Domestic Product of 3 percent in 2015, after a projected gain of 2.2 percent in 2014. With nonfarm job growth of 2.2 percent in California, the state’s unemployment rate should decrease to 5.8 percent in 2015 from 6.2 percent in 2014 and 7.4 percent in 2013.

The average for 30-year fixed mortgage interest rates will rise only slightly to 4.5 percent but will still remain at historically low levels.

The California median home price is forecast to increase 5.2 percent to $478,700 in 2015, following a projected 11.8 percent increase in 2014 to $455,000. This is the slowest rate of price appreciation in four years.

“With the U.S. economy expected to grow more robustly than it has in the past five years and housing inventory continuing to improve, California housing sales and prices will see a modest upward trend in 2015,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “While the Fed will likely end its quantitative easing program by the end of this year, it has had minimal impact on interest rates, which should only inch up slightly and remain low throughout 2015. This should help moderate the decline in housing affordability we saw occur over the past two years.”

“Additionally, the state will continue to see a bifurcated market, with the San Francisco Bay Area outperforming other regions, thanks to a more vigorous job market and tighter housing supply.”

6 Things Homebuyers Should Avoid Once They are Preapproved for a Mortgage

black couple loan approved

You have done the hard part in the home-buying process and chosen a lender and a real estate agent to work with. You have also gone out and found the home of your dreams! Best of all, your team has done a great job of negotiating the best deal for you.

Now, as a buyer, all you have to do is sit back and wait for your loan to close … right? Wrong!!

Getting a home loan these days is a very interactive process. I am always amazed by how many clients I work with who come to me unaware of all the pitfalls they face during the loan process. To help avoid any surprises while waiting for final approval, I provide my clients with a short list of “do’s and don’ts” to follow.

Let’s start with the “do’s” …

  1. Do keep the process moving by responding to your loan officers’ requests for documentation as soon as possible.
  2. Do make decisions as soon as is reasonably possible.
  3. Do convey questions or concerns you
  4. Do continue to make all of your rent or mortgage payments on time.
  5. Do stay current on all other existing accounts.
  6. Do continue to work your normal work schedule with no unplanned time off.
  7. Do continue to use your credit as normal.
  8. Do be prepared to explain any large deposits in your bank accounts.
  9. Do enjoy purchasing your home but remain objective throughout the process to help make decisions that are best for you.

After you have been preapproved for your mortgage you will want to refrain from the following…

  1. Do not make any major purchases (car, boat, jewelry, furniture, appliances, etc.).
  2. Do not apply for any new credit (even if it says you are preapproved or “xxx days same as cash”).
  3. Do not pay off charges or collections (unless directed by your loan officer to do so).
  4. Do not make any changes to your credit profile.
  5. Do not change bank accounts.
  6. Do not make unusual deposits into your bank accounts or move money around from one account to another.

Follow these simple rules and you will help to make your loan closing as smooth and hassle-free as possible! Good luck!

FHAs Back to Work Program Waives Waiting Times

(Courtesy NKS Financial)

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Purchase again sooner than you think

The Federal Housing Administration (FHA) recently announced its “Back to Work” program, which is giving individuals who suffered a long period of hardship during the recent housing crisis a second chance to prove they can carry a mortgage and own a home.

The program will waive many of the waiting periods associated with a significant “economic event” such as bankruptcy (Chapters 7 and 13), short sale or foreclosure.

Potential candidates may be first-time or repeat home buyers, and the program can be used for the 203K rehab loan. It must be approved by an FHA lender, and as some lenders are choosing not to participate, you may want to contact your mortgage professional for more information on this.

Eligibility

To participate in the program, individuals must be able to demonstrate they’ve recovered fully from the “event”, and document the fact that they did have a household income loss of at least 20 percent for a period of at least six months that coincided with the “event.” They also need to prove current, stable and documentable employment to qualify.

As well, they need to demonstrate a 12-month positive payment history, and this specifies on-time payment of all mortgage and installment debt. There is some latitude for credit card debt, but it is slight.

Counseling sessions

Applicants also must attend counseling sessions before being able to participate in the program. This is usually a one-hour session with a HUD-approved counselor, and was designed to help participants prevent the “economic event” from happening again.

Qualifying A Condo for an FHA loan

If you are in the market to purchase a condo and are using an FHA loan (most loans now are FHA), then you or your agent can use this site to see if the home that you want to make and offer on is FHA approved.

What does that mean? It measn when many of these developments were constructed several years ago, there were no FHA loans and so no one bothered to go thru the FHA certifiation process. So many of the developments are not FHA approved.

Single family homes are usually approved for FHA financing as long as the price parameter and the condition requirements are met. Attached housing (condos and townehomes) need to be FHA approved. Read further for more details on how this works:

HUD Section 234(c) of the National Housing Act provides authority to insure any mortgage covering a one-family unit in a project coupled with an undivided interest in the common areas and facilities which serve the project. The project may include dwelling units in detached, semidetached, row, garden-type, low- or high-rise structures. Generally these types of properties are referred to as Condominiums.

HUD will insures mortgagees against losses on mortgage loans used for buying a condo or to refinance individual units in eligible condominium projects provided that they meet certain guidelines.

A. Project Eligibility. The condominium project must be on HUD’s approved condominium list.
B. Applicant Eligibility. Eighty percent of the HUD-insured mortgages in a condominium project must be the principal residence of the owners (owner-occupants).
C. Maximum Insurable Mortgage: Same as Section 203(b) (except that the mortgage amount must be in multiples of $50).
D. Minimum Investment: Same as Section 203(b).
E. Mortgage Term: Same as Section 203(b).
F. Mortgage Insurance Premium: Monthly+Upfront MI of 1.5%
G. Refinancing: Same as Section 203(b).

If the Condominium is not approved then the Lender may go through the “Spot Approval” process.

The following requirements must be satisfied before a spot loan is endorsed:

• The condominium project must be complete. There should be no ongoing or anticipated addition of any units, common elements, and/or facilities.
• Control of the common areas of the project must have been turned over to the unit owners association for at least one year.
• The owners association must provide evidence that the project has the appropriate hazard, liability and flood insurance.
• Individual units in the project must be owned in fee simple or be an eligible leasehold interest. The project’s legal documents must provide for undivided ownership of common areas by unit owners. By virtue of this ownership, unit owners must have the right to use all facilities and unrestricted common elements.
• The project’s documents should not place any legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is generally unacceptable. Such restrictions include rights of first refusal and restrictive covenants. Certain governmental or nonprofit programs designed to assist in the purchase or rental of low- or moderate-income housing are exempted from the restrictions on conveyance provisions.
• At least 90% of the units in the project must have been sold.
• At least 51% of the units in the project must be owner-occupied.
• No single entity may own more than 10% of the units in a project. “Entity” includes an individual partnership, corporation, limited liability company, limited liability partnership, joint venture, investor group or other natural or legal person qualified to hold an interest in real property. The 10% restriction does not apply when the ownership of less than three units would disqualify an otherwise eligible project.
• HUD recognized that the 10% cap on the number of units that may secure FHA insured mortgages in a given project can place a small regime at a disadvantage, since only a few units will invoke the limit. Accordingly, a two-tiered system was established. For condominium projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given time. Condominium projects consisting of 30 units or less, can have up to 20% of the units encumbered by FHA insured mortgages under the spot loan rule.