Archive for December, 2008

Is an FHA or Conventional Loan Better for my Primary Residence?

by Justin Miller on December 16, 2008 in Conventional Loans, FHA Loans with No comments

That is a very good question and the answer is that it depends.  FHA is a great loan if you are looking to put the least amount down.  FHA requires 3.5% down and the maximum loan amount for Broward, Palm Beach, and Miami-Dade Counties is $345,000 starting January 1st, 2009.  The rates on FHA are very good and it has reduced mortgage insurance premiums.  The interest rates with FHA are not as credit score driven as conventional.  The only draw backs are that FHA requires you to keep the mortgage insurance on for a minimum of 5 years AND until you have 22% equity in the property.  It also requires an “Upfront Mortgage Insurance Premium” charge of 1.75% of the loan amount.  The 1.75% does get financed into the loan but it is a charge nonetheless. 

 

A conventional loan is a great loan but it requires at least 10% down in Florida but has a maximum loan amount of $417,000.  Interest rates can be a little better on conventional loans than with FHA loans depending on your credit score.  The mortgage insurance is a little higher than FHA but not by much.  Depending on what mortgage insurance company and/or lender, you are only required to keep it on for 1 year and until you have 20% equity in your home. 

 

If you are looking to purchase a condo with an FHA loan then the condo project will have to be FHA approved or get what is called a spot approval.  A spot approval is a request for the lender to approve just the individual unit you are looking to purchase.  Spot approvals are very hard to get because the condo project cannot have a right of first refusal and must have reserves.  Most condos have a right of first refusal.  With a conventional loan you must put at least 20% down in Florida but the requirements aren’t quite as strict as the FHA spot approval.  This can be frustrating to many borrowers looking to purchase a condo but if a lender is not willing to lend on the property it is probably in your best interest to stay away from it anyway.  Although the lender is looking out for themselves it ends up protecting you as a borrower too.  Some lenders have eliminated financing for condos completely. 

 

If you have at least 10% to put down and credit scores above 720 I would recommend going with a conventional loan.  If not, FHA is a great loan too. 

Interest Rates Drop to a 4 year Low

by Justin Miller on December 12, 2008 in Interest Rates with No comments

Interest rates have dropped to a 4 year low in the past 2 weeks because Federal Reserve instituted direct purchases of $100 billion of Fannie Mae and Freddie  Mac (the mortgage giants) obligations, and plans to buy another $500 billion of mortgage backed securities. The Fed set up a Term Asset-Backed Securities Loan Facility (TALF) with the help of $20 billion from the Treasury, and will purchase up to $200 billion in commercial paper backed by consumer loans. The Fed’s actions are a big step, but they have made big steps in the past. The fact that they will now buy mortgage-backed securities is huge, and is a direct help to housing, one of the main areas of economic weakness.  These programs are a way for the Fed to further expand the total amount of reserves outstanding while directing the new money toward areas where it is needed.

 

Rates are currently at 5.125% on a 30 year fixed loan, paying no points, on loan amounts greater than $125,000 and up to $417,000, showing income, primary residence, putting 20% down, 740 plus credit scores, with escrowing your taxes and insurance. 

 

Here is a great article about rates hitting a 4 year low from The Wall Street Journal. 

 

http://online.wsj.com/article/SB122904627550500681.html?mod=todays_us_money_and_investing  

Calling a Bottom

by Justin Miller on December 12, 2008 in Interest Rates with No comments

There were suggestions last week that the federal government might drive rates down to 4.5%.  No one knows who would get these low rates except that it will be for home purchases only.  This is a story should have never been leaked and I truly believe that it will not take place.  The news has died down and artificially decreasing rates would only encourage risk taking and debt consumption.  Rates have dropped to the low 5 percents in the past 2 weeks due to the Fed buying up $600 billion in mortgage-backed assets and the only increase in my business has been from refinances, not purchases.  This is not the solution to our problem.  The low 5 percent range isn’t spurring buying and neither will 4.5%.   If you are borrowering money anywhere in the 5 percent range that to me is free money.  What we need to do is change the underwriting guidelines for self-employed borrower and help existing borrowers who are facing foreclosures. 

 

The bottom line is that once everyone becomes more optimistic you won’t be able to low ball offers, get sellers to contribute towards closings costs, etc.  We don’t know when the bottom will come but when it does it may be too late.  Here is a great article that talks about buying now.

http://www.nytimes.com/2008/12/06/business/yourmoney/06money.html?_r=2&pagewanted=1&8mon&emc=yma1&adxnnlx=1228758029-NBNVwvbK7ozeqKrWxigKog   

What is a Jumbo Mortgage and why are rates higher?

by Justin Miller on December 12, 2008 in Interest Rates, Jumbo Mortgages with No comments

A Jumbo mortgage is a loan amount that is greater than the Conforming loan limit of $417,000.  Jumbo loans require higher down payments along with higher interest rates.  The reasons for this are because higher priced homes are not as marketable as a home that is $417,000 or less and due to the recent real estate crisis there isn’t a secondary market for them. 

 

What is a secondary market?  It is where loans are bought and sold by banks, Wall Street, and investors.  There are just not as many people looking at homes in the higher price ranges as they are for a home of say $300,000. 

 

How do they arrive at a number of $417,000 or higher?  The conforming loan limits are determined by the median sales price of a county.  For 2009 if the median sales price for a county is less than $417,000 they will still allow $417,000 as the maximum loan amount.  Broward County Florida’s median sales price is $345,000 which will also be the maximum loan limit on FHA loans starting January 1st, 2009. 

 

So what are the interest rates on Jumbo Mortgages?  It all depends on how much you will be putting down, your credit score, etc.  Typically you will want to look at a 5/1 ARM (adjustable rate mortgage) or 7/1 ARM which are fixed for 5 or 7 years and adjust there after based upon and index such as the LIBOR and a margin which is fixed.  Rates as of December 12, 2008 on a purchase of a single family home, putting 30% down, with a loan amount no greater than $850,000, primary residence, showing income, 700 plus credit scores, paying no points, on a 5/1 ARM, your rate would be 5.5%. 

The FDIC and Stopping Foreclosures

by Justin Miller on December 12, 2008 in Foreclosure, Loan Modification with No comments

I have mentioned numerous times that the only person who understands what needs to be done to help the real estate market is the FDIC Chair, Sheila Bair.  It is not a rate of 4.5%, its modifying loans that are in default.  The best plan of action would be to put a borrower in the Hope for Homeowners program which would reduce the principle owed on the mortgage to 90% of the current appraised value.  This program went into effect on October 1st, 2008 but lenders still have not implemented.  The reason lenders want to avoid this is because the government gets the shared appreciation, not the lender.  I don’t know if the lender deserves the shared appreciation but if we don’t allow them any of it they are going to do whatever they can to avoid reducing principle balances.  Although if I were a bank I would rather write the principle balance down, avoid all the costs of going through a foreclosure sale, and bringing down all of the values in and around that neighborhood.  Here is a great article that talks about this from Jack Guttentag, The Mortgage Professor http://finance.yahoo.com/expert/article/mortgage/128271  

 

Here is a link for more information on the Hope for Homeowners Program http://portal.hud.gov/portal/page?_pageid=73,7606147&_dad=portal&_schema=PORTAL   

Borrowers are still falling behind after loan modifications

by Justin Miller on December 11, 2008 in Foreclosure, Loan Modification with No comments

More than half of homeowners fell behind on mortgage payments in the first six months after their loans were modified earlier this year, new data from the Office of the Comptroller of the Currency and the Office of Thrift Supervision show.  This is due to lenders not doing enough to lower their payments.  I don’t know the exact rule of thumb but I believe they only leave you with a cushion of $200-300/month in discretionary income.  That is just asking for trouble.  They use your net income minus all expenses including groceries, gas, etc unlike a mortgage where they use gross income, your mortgage(s), and what is reported to the credit bureaus (credit cards, car loans, student loans, etc).  The bottom line is that banks need to lower borrower’s debt to income more than they currently are. 

 

http://online.wsj.com/article/SB122875409101488333.html?mod=todays_us_page_one

 

The Mortgage Bailout

by Justin Miller on December 11, 2008 in Bailout with No comments

Donald Trump was on FoxNews and CNBC on Tuesday and he talked about how strict they are being with the auto makers and how they made the CEO’s look like idiots driving for 2 days in hybrid cars.  This is probably fair but what isn’t fair is how they allow the banks to do whatever with the bailout money.  One bank bought a bank in China for $6 billion dollars.  The auto makers need to come up with a plan but aren’t the banks the one who caused this mess?  The WSJ reported that the panel overseeing the Treasury Department’s $700 billion financial-rescue fund is expected to release a report Wednesday that is highly critical of the government’s handling of the bailout, people familiar with the matter said. It will also press the Bush administration to act more aggressively to prevent foreclosures.  The roughly 30-page report is also expected to press Treasury to describe whether the money used to inject capital into the banking sector is a “giveaway” or a “fair deal,” according to one person familiar with the report.

What if a foreclosure or short sale needs repairs?

by Justin Miller on December 9, 2008 in FHA Loans with 1 Comment

Are you tired of looking at foreclosures that you can’t afford because you don’t have the money for needed repairs?  Now you can do something about it.  An FHA 203(k) Streamline Limited Repair Rehab Loan allows a customer to (1) purchase or refinance a home and (2) make limited upgrades and repairs to the property under one loan.  With the Streamline, there is no minimum amount for the repair costs but the maximum is $35,000.  FHA also has a Standard Rehab Loan that requires a minimum of $5,000 in repair costs and allows for more than $35,000 but it is much more involved.  I recommend staying under the $35,000 if possible.

 

Under a Streamlined Rehab loan, many repairs are allowed including replacement of roofs, gutters and downspouts; replacing floors; minor remodeling (which does not include structural repairs); both interior and exterior painting; and purchase and installation of appliances.

 

What repairs aren’t allowed?  Important items include major rehabilitation; new construction; repairing structural damage, and pool improvements and repairs including screened cages and landscaping.

 

For additional questions on eligible and ineligible repairs under both the Standard and Streamlined Rehab Loans this link will provide the answers: http://www.hud.gov/offices/hsg/sfh/203k/faqs203k.cfm

 

 

And please don’t hesitate to contact me if I can be of further help.

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