HOME LOANS Category
Popular FHA Loan Program Changes Rules
FHA LOANS, HOME LOANS, SHASTA COUNTY, TIPS FOR BUYERS
Just a few years ago, virtually anyone could qualify for 100% financing even with stinky credit. Those loans evaporated after the bubble burst causing an upsurge in usage of FHA loans in the Redding/Shasta County real estate market. The reason is the relatively low down payment requirements (3.5%) offered by the FHA loan program. Due to its popularity, and defaults on loans, HUD is tweaking the program in hopes of stemming a tide of red ink.
The two primary changes involve the upfront fee collected from the borrower (being reduced) and the mortgage insurance premium (MIP) tacked on to the payment (being increased). The MIP is going up from 0.5-0.55% to 0.85-0.9% depending on the size of the downpayment. The upfront insurance premium is dropping from 2.25% to 1%. This fee is either paid in one lump sum at closing or rolled into the loan and paid over the life of the loan.
On the surface this does not sound too bad but in the real world this will cost the borrower dearly over the long run. Here’s an example provided by FHA and detailed in a recent article in THE NEW YORK TIMES. A borrower puts 3.5% downpayment on a purchase price of $154,000 (the median home price today) and finances the upfront mortgage insurance fee into the loan. The mortgage payment, including principal, interest, taxes, homeowner’s insurance and both mortgage insurance premiums goes up from $1,205/month to $1,238/month. The increase includes the drop of the upfront MIP from $3,344 to $1,486 but the monthly increase in the MIP from $68 to $111.
All FHA loans require mortgage insurance while conventional loans have a sliding scale for insurance rates if the borrower tenders less than 20% downpayment. The FHA MIP can be eliminated after 5 years if the loan-to-value ratio drops below 78%. This can be accomplished by paying down the principal, appreciation of the property value, or a combination of the two.
FHA has for the first time set a minimum credit score threshold of 500. Those with credit scores between 500 and 580 must tender a 10% downpayment. However, practically speaking, most lenders will require higher credit scores to assure they can get the loans insured by FHA. The financial meltdown has created a vast new realm of buyers that heretofore would have never considered an FHA loan due to the hefty mortgage insurance premiums. Company executives, teachers, and people with six-figure incomes are now applying for FHA loans!
The desire to leverage real estate purchases with a minimal downpayment is alive and well, despite the added cost for the opportunity to do so.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL REAL ESTATE EXPERIENCE
Will The Seller Throw In The Ski Boat To Clinch A Sale?
HOME LOANS, TIPS FOR BUYERS, TIPS FOR SELLERS
A couple weeks back, while showing a home in Redding, a buyer tossed out this question as he was eyeing the seller’s boat parked under a canopy in the backyard. He was surprised when I told him that was not a good idea. In fact, I give my clients this same advice even if they are asking about the fridge, washer and dryer. Mixing personal property with real property as bargaining chips can backfire on the buyer for a number of reasons.
First, the buyer will have the privilege of paying property taxeson the personal property rolled into the purchase price. Let’s say the seller agreed to throw in the $10,000 ski boat in lieu of a reduced price to appease the buyer. The buyer could have taken $10,000 off the price of the home but got a boat instead. Assuming the buyer is not securing a mortgage to make the purchase, the buyer will pay property taxes forever on the value of the boat because it was rolled into the purchase price. Once the buyer gets title to the boat, the assessor will levy a personal property tax on the boat, so the buyer pays taxes twice on that one boat. Adding furniture, appliances, hot tub, plasma TV’s or anything else considered personal property can cause the same problem for the home buyer.
Secondly, if the buyer is getting a loan, the buyer gets the additional privilege of paying interest on the boat purchase since it was rolled into the price of the real estate. If the lender finds out personal property was included in the sale, the appraiser may put a value on the personal property and make a deduction from the appraisal in that amount, potentially jeopardizing the loan.
Thirdly, the seller and real estate agents have a potential headache if the buyer discovers a major problem with the personal property item included in the purchase. If the boat takes on water or the compressor on the fridge fails, the seller or I get an angry call from the buyer.
Bottom line-keep personal property out of a real property purchase to keep the taxable value to a minimum, prevent unwanted interest expenses and warranty issues from arising. I’ve never had a buyer or seller disagree with this explanation as to why mixing the two types of property is a bad idea.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL SALES EXPERIENCE
Redding Home Prices Slip Further In October
HOME LOANS, SHASTA COUNTY, TIPS FOR BUYERS, TIPS FOR SELLERS
Redding City Hall
The average Redding home is a three bedroom , 2 bath home with about 1750 square feet. One local apprasier has tracked the value of the typical Redding home for the past couple years and his last report indicates the average cost per square foot took a big hit in October. The last quarter of 2009 and the first two quarters of 2010 showed signs of price stabilization. Then, the average cost per square foot for the typical home hovered around $127/square foot.
The same statistic for October showed a slip to $111/square foot, or a 13% drop. The descent started in the summer months after the federal tax credit expired. Coincidentally, the number of bank owned properties listed for sale on the Shasta MLS spiked during the spring and summer months. Beginning in May of this year, when 160 REO’s (Real Estate Owned or bank repo’s) were listed for sale, the number of REO’s steadily climbed to today’s level of 263 active listings out of 1445 total home listings. That represents a 39% increase of REO’s listed for sale in a 5 month time period.
David Benda reports monthly on the number of Notice’s of Default (NOD’s) filed in the Shasta County Recorder’s office. For October, that number of NOD’s, the first step in the foreclosure process, exceded 400. This is my crystal ball to what the future holds. Until the tide of foreclosure filings subsides, prices will continue to fall. Sellers need to take this information into consideration when pricing or negotiating a sale of their real estate.
The bad news for sellers is good news for buyers. Affordability has never been greater during the past several decades than today due to prices about half what they were at the peak and interest rates that have not been this low since 1951. Some financial experts believe fed actions to flood the market with $600 billion in securities will backfire and long term interest rates will rise, not fall. If that is true, now may be the time to make a move.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS OF LOCAL REAL ESTATE EXPERIENCE
New FICO 8 Mortgage Score Announced
HOME LOANS, INDUSTRY NEWS, TIPS FOR BUYERS
Credit scores are used as a tool by lenders to assess a borrower’s risk for many types of credit. FICO announced a new score developed specifically for analyzing prospective homeowners applying for mortgage loans. Dubbed FICO 8 Mortgage Score, this analytic technology provides a sharper assessment of a home buyer’s risk for possible loan default. The score can also be used by lenders to identify existing borrowers at risk for foreclosure allowing early intervention before an expensive foreclosure action is initiated.
In the past, lenders use a general-risk FICO scores to predict the likelihood a loan will be repaid. The new FICO 8 score assesses additional data in a consumers credit file in an effort to specifically predict mortgage repayment risk. As usual, FICO will not provide details as to how or what information is used in their new credit scoring technique in order to prevent consumers from manipulating their finances to achieve a higher score.
FICO indicates the score will have the same 300-850 range. Additional codes will be developed as per the Fair Credit Reporting Act so lenders understand the reasons for the score and can explain the scores to credit applicants. The new scoring system is available to all three major US credit reporting agencies-Trans Union, Equifax and Experian. FICO claims the new score has demonstrated up to 15% higher predictive ability than the general-risk FICO score.
Since the housing bubble burst, minimum credit score thresholds to lock in the lowest interest rate and terms for mortgage loans has risen. Fannie Mae and Freddie Mac set the ground rules for lenders by setting minimum underwriting standards for loans they will purchase. If lenders fail to keep pace with their belt-tightening, the lender may be unable to sell their loans to the secondary market which in turns limits their ability to make additional loans. Today, borrowers in general must have a credit score of 720 or higher to qualify for the lowest rate and best loan terms. That’s nearly 80 points higher than the scores required just three years ago.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEAQRS LOCAL REAL ESTATE EXPERIENCE
BBB Warns Of Mortgage Rescue Scams
The Better Business Bureau (BBB) cites a recent report from the US Government Accountability Office which found
numerous schemes perpetrated by scam artists to profit from distressed homeowners. In their desperation to save their homes, borrowers are falling for two popular foreclosure avoidance schemes:
- Advance fee scheme- the borrower is charged an upfront fee (illegal) in exchange for a promise to negotiate a deal with your lender for a loan modification. Some scammers even offer a money-back guarantee! The fee averages about $3,000 and for that the distressed homeowner gets little or no service and when asked for a refund, they refuse.
- Sale-Leaseback scheme-the scammer persuades you to deed the property to them in exchange for taking over payments as long as you pay rent to the scammers “while you get your affairs in order.” Then they promise to sell the property back to you once your financial situation improves. They don’t. They may take out another loan against the property or sell it to someone else.
A new variation of the advance fee scheme has gained traction dubbed the “forensic mortgage loan audit.” The scammers promise, for a sizable up-front fee, to find regulatory violations in your original mortgage which they claim will help you avoid foreclosure or cancel the debt altogether. There is no evidence any homeowner has succeeded in modifying their loan using this information. I spoke with one such firm on behalf of a client and he admitted he was a former loan officer that lost his job when the real estate bubble burst. Now he’s going back and victimizing clients he placed in bad loans!
I’ve blogged about the “red flags” before but here’s an expanded list of things to look out for:
- firm guarantee to stop a pending foreclosure-regardless of the reason your behind in payments
- insists you not contact your lender, an attorney, Realtor or credit counselor
- collects an upfront fee before providing any services (illegal)
- accepts payment only by wire transfer or cashier’s check
- suggests you lease your home so you can buy it back over time
- instructs you to make your mortgage payments to them, not your lender
- asks you to transfer title to them
- offers you cash for the home at a price not reflective of current market value at time of sale
- offers to complete paperwork on your behalf
- pressures you to sign paperwork you haven’t had a chance to read or don’t understand
The old adage “If it sounds to good to be true, it’s probably not” applies here. The housing crisis has generated millions of potential victims, and the scammers are poised to take advantage of vulnerable homeowners in distress. Don’t fall for these scams as so many already have. Call me for further information.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL REAL ESTATE EXPERIENCE
Mortgage Rates Drop, But Credit Bar Rises?
HOME LOANS, SHASTA COUNTY, TIPS FOR BUYERS
According to a recent article in Smart Money, the minimum credit score to get the best rates and terms on a mortgage just increased by 40 points. A FICO score of 680 use to be the break-point between great credit and good credit. Now the line has been upped to 720, according to Smart Money author AnnaMaria Androitis.
If this is true, the Redding/Shasta County real estate market could be adversely impacted. Local loan brokers and loan officers have told me in the past the average credit score in this part of California hovers in the low 600’s. The higher the credit score bar is raised for a borrower to obtain the best loan terms, the fewer prospective buyers able to take advantage of historic-low interest rates.
AnnaMaria points out that a 680 credit score used to be something to be proud of. Such a score implied you paid your bills on time, perhaps getting dinged on a refi, but all and all qualified for the best interest rates. The change has now put this score solidly in the second-tier, potentially costing a borrower thousands over the life of a typical mortgage loan.
Other factors that impact credit scores:
- Length of credit history-15 years or more is tops
- Low credit card balances-in relation to total available credit
- Applying for new credit cards
For those near the break-point, a credit inquiry can push you down a tier. Increasing your credit balances above 30% of your total available credit could also send your score downward.
To maintain or increase your credit score, pay bills on time, pay your balances down and avoid applying for new lines of credit.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL SALES EXPERIENCE
Redding/Shasta County Real Estate Market Update
HOME LOANS, SHASTA COUNTY, TIPS FOR BUYERS, TIPS FOR SELLERS
Redding home prices slipped downward in the third quarter to $122/square foot on average for a 1500-2000 square foot home. That represents about $4/square foot less than the 2nd quarter of 2010. The number of homes listed for sale dropped from the August high-point of 1649 to 1521 this week.
Pending home sales peaked at 529 in May as buyers rushed to take advantage of the federal tax credit. Today, 431 homes are in escrow. More than 58% of pending sales are distressed properties-147 are bank-owned and 102 are short sales.
The majority of sales remain concentrated in the under $300,000 price range. 183 homes sold in September of which 157 were listed at or below $300,000. Year-to-date home closings are 1610. Roughly 2000 homes should close by year’s end.
The number of available bank-owned homes listed for sale has risen steadily over the summer. In early June, 196 REO’s were listed for sale. Today, 260 bank-owned properties are looking for a buyer. The voluntary foreclosure moratorium by Bank of America has had no impact locally.
Interest rates continue to drop. The 30-year fixed rate is just over 4% and the 15-year fixed is in the mid 3% range. Lenders today are reluctant to give firm interest rate quotes due to new underwriting guidelines which take into account a variety of factors besides credit scores.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN A QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
Halt To Foreclosures by B of A Could Impact Real Estate Values
Realtors are studying Bank of America’s decision to voluntarily stop foreclosures in California and have made some preliminary observations. Steve Goddard, President of the California Association of Realtors, summarized what is going on in a newsletter released Tuesday. Here are some of his points:
- Lenders and loan servicers began halting foreclosures voluntarily in late September and early October
- Only B of A placed a moratorium on foreclosures in California where most foreclosures are not processed through the courts (non-judicial)
- Recent foreclosure laws in California place specific requirements on lenders. For example, loans made between Jan.1,2003 and Dec. 31, 2007 require the lender to attempt to make contact with the borrower to discuss foreclosure avoidance options at least 30 days before filing a Notice of Default (NOD), the first step in the foreclosure process
- The halt to foreclosures by all lenders is voluntary and not mandated by state or federal government
- Realtors across California have already reported delays on escrow closings and removal of listed properties for sale
- Long-term effects of this move are unknown but in the short-term reducing inventory of available homes for sale could slow home sales and place upward pressure on prices (supply and demand)
- Even if the moratorium is lifted in a month or so, the move has created uncertainty in the minds of buyers considering a purchase of a foreclosed property
- Lenders estimate the process of reviewing their foreclosure procedures will take at least a few weeks to 30 days to complete
California is unique in that most lenders utilize Deeds of Trust (DOT’s) to securitize their loans while most other states use mortgages. A DOT is a three party instrument-trustor (borrower), trustee (neutral third party-usually a title company) and the beneficiary (the lender). The process and timeframe for foreclosing on a DOT is fast compared to a mortgage.
Mortgages, a two-party instrument (mortgagor and mortgagee) allow the borrower to redeem their ownership interest in the property for up to 1 year after the foreclosure if they can cough up all the money borrowed plus back interest, penalties and costs. DOT’shave no right of redemption nor can the lender chase after the borrower for any deficiency in most cases. The property itself, not the borrowers personal assets, is the only place the lender can look to to recover what was owed. However, if a borrower refinanced the property, or the property was an investment, the lender may be able to pursue any cash deficiency loss if the property does not sell for enough to cover the loan balance and costs. Short sale sellers could also be subject to pursuit for any loss the lender incurs as a result of agreeing to a short payoff.
This halt in foreclosures will certainly prolong the day we can close the book on this ugly chapter of the Great Recession.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL SALES EXPERIENCE
Time To Consider Streamline FHA Home Loan Refinance?
For years, borrowers utilizing loans insured by the Federal Housing Administration could apply for a refinance
to lower their interest rate without all the headaches of full documentation and fees. Today, homeowners with FHA loans can take advantage of historically low rates with even less hassles.
Here are some important details:
- Must have a 660 credit score or better
- Existing loan must be at least 6 months old
- No thirty-day late payments in past 12 months
- Lender will call wage earner’s employer for verbal verification of employment
- Self employed borrowers must provide copy of business license or prove existence of business
- All “other” income must be documented
- Borrower must have appropriate debt-to-income ratios
In some cases no appraisal is required- the original appraised value is used. Currently, interest rates are below 4.5% for borrowers with good credit. If you are paying 6% or more on your existing FHA loan, taking advantage of today’s rate could result in 25% of interest savings. A $200,000 loan at 6% interest is roughly $1,200/ month for principal and interest, not including taxes, insurance or mortgage insurance. At 4.5%, the payment would be $1,013. If the loan refinance fees were about $2,500, you would break even in about 14 months, then save about $183/month thereafter.
For more particulars regarding an FHA refinance, contact Wayne Barni of Choice Funding at 530-224-6707.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL REAL ESTATE EXPERIENCE
Need Help From Foreclosure Prevention Company?
HOME LOANS, SHORT SALES, TIPS FOR SELLERS
Fannie Mae launched a website this month to assist underwater borrowersincluding those in Redding/Shasta County. The site offers advice on steps to take to avoid foreclosure as well as directing borrowers to legitimate companies that provide foreclosure-prevention services. This is in response to a proliferation of companies claiming to offer foreclosure prevention services. In many cases, these companies take your money and do little or nothing to help the distressed borrower. The web address is www.knowyouroptions.com. Here is a summary of what the site contains:
- All information is available in English and Spanish
- Video explanations detailing what each site tab might accomplish
- Contact information for mortgage companies and loan counselors
- Calculators to help determine if a borrower is eligible for assistance
- Information on foreclosure alternatives such as short sales or Deed in Lieu of Foreclosure
The news release from the California Association of Realtors also recommends another helpful site www.homeloanport.com for consumers and loan counselors to submit financial documents to mortgage companies. This site also tracks the consumers efforts to avoid foreclosure which could be helpful when considering the various foreclosure alternatives.
Please feel free to contact me with specific questions. I’m here to help!!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL REAL ESTATE SALES EXPERIENCE
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