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The Worst Things You Can Do Before Buying A Home . . .

10 Mar

Cynics may scoff, but getting under contract on the right home can turn even the most stoic shopper into a bit of a dreamer. From paint colors to planting a garden, picturing yourself in that property is critical for many buyers.

But leave a little room for pragmatism. Remember that getting pre-approved for a mortgage and even under contract isn’t a guarantee. That prefix is there for a reason. Loan pre-approval is not loan approval.

You’ll have more hurdles to clear before a lender legally commits to funding your home loan. Buyers who don’t know any better can inadvertently add obstacles to that path, or even kill the entire deal between contract and closing day.

Some missteps can be costlier than others. Here’s a look at five of the worst things you can do before buying a home.

1. Go Credit-Crazy

It’s almost become cliché in the mortgage industry, but the warning still bears repeating: Don’t buy a truckload of furniture until after your loan closes. The prohibition goes beyond sofas and settees,  avoid obtaining credit for any major expense, such as a car, a boat or, yes, a new bedroom set.

Be careful with even minor expenses. If you absolutely need to obtain new credit or accrue debt before closing, talk with your loan officer as soon as possible.

New payments are going to affect your monthly debt-to-income ratio (and residual income on a VA loan), and not in a good way. Hard inquiries on your credit report could also lower your credit score. That might hurt your interest rate if you haven’t locked or even knock you out of qualifying range all together.

2. Shuffle Dollars and Cents

Lenders will scour your most recent bank statement as part of the pre-approval process. It’s not like they forget about it after that. They’ll take another look at your assets and bank records again during the underwriting process.

You’ll need to explain any unusual deposits or withdrawals. Lenders will require clear documentation and a paper trail if you’re putting gift funds toward a down payment or closing costs. Stuffing a wad of undocumented cash into your account is going to raise some red flags.

3. Get Behind on Bills

Having a late payment hit your credit report before closing can devastate your deal. Payment history comprises about a third of your credit score.

One solitary 30-day late payment can clip 60 to 110 points from your credit score. Maybe not a huge deal if you had an 800 score, right?

Possibly. But if that 30-day late blemish is a mortgage or rent payment, some lenders will boot your application altogether. Many will require at least 12 consecutive months of on-time payments to qualify for a home loan.

4. Co-Sign on a Loan

Co-signing a loan is arguably a bad financial move whenever you make it. But it’s especially risky during the mortgage lending process. It means you’re financially liable for someone else’s debt.

Yes, that someone else might be the most responsible person on the planet. Lenders will still need to factor that new monthly obligation into your overall affordability profile. Adding one more debt to the list could stretch too thin your debt-to-income ratio and assets.

5. Changes in Employment

Probably goes without saying, but losing your job is going to be a big problem. Even job-hopping can present some major hurdles. Lenders crave stable, reliable income that’s likely to continue.

Lenders are likely to slam on the brakes if you take a new job in a different field. Or if you decide to start your own business. Or even if you get a promotion but see some or all of your income shift to a commission basis.

The bottom line: Any change to your employment is significant. Keep your loan officer in the loop, and ask questions when in doubt. The last thing you want is to waste time and money on a home loan you’re never going to get.

Throughout the mortgage process, it can also be helpful to monitor your credit scores for changes so you can know whether you need to address any problems. To do that, you can use a free tool like Credit.com’s Credit Report Card, which updates your credit scores and an overview of your credit report every month.

This article was written by Chris Birk and originally published on Credit.com.

What’s The Deal With Flood Insurance In Coastal Georgia?

4 Mar

flood-insuranceIf you live in or are considering a purchase in our beautiful, coastal Georgia area of Savannah and surrounding Islands, chances are that you will be required to have a separate flood insurance policy. Even if you are not required to have one, I definitely recommend that you add it. The determination of flood policy requirement is based on the flood zone your property lies in, detailed in a  document known as a Flood Elevation Certificate. Hopefully, your agent or the current homeowner can get or has one available, because otherwise you will have to hire a land surveyor to come out and measure. You can bet that if you live near a marsh, creek, beach or other type of waterway that your lender will require this additional policy. More recently, I have seen lenders require flood policies in Pooler, Effingham and Bryan County.

It is important to realize that your homeowner’s insurance policy does not cover flooding! A separate policy is necessary to cover structural and content damage that occurs from flooding. Here are some things that you should know and review with your Realtor and Insurance Agent:

  • Flood Zones: There are basically three categories of flood risk determined by FEMA; Moderate to to Low Risk Areas (B, X & C), High Risk Areas ( all A categories) and High Risk Coastal Areas (any V category). The High Risk and High Risk Coastal Areas carry a mandatory requirement for flood insurance.
  • Transfer of Flood Policy: Some policies may be transferred when buying a property, contingent on new lenders approval. Depending on the length left on the existing policy may determine whether or not new lender will accept.
  • Preferred Risk Policy: The flood maps are being updated regularly, and while Effingham and Bryan County were in an X zone prior to 2008, they are now in A and AE zones in some cases. What that means is that some properties will be grandfathered in, and keep the lower policy premiums for 2 more years, but after that rates are expected to double or triple.
  • Pre-Firm or Post-Firm? Elevated vs. Non Elevated : If you are considering a property on Tybee Island for instance, there is the question of pre-firm or post-firm?  This is simply if a property was built before 1971 (in this example), when the flood maps were drawn. Anything before this time can be insured however it was built, but anything after must adhere to current building codes to guarantee insurability. (Think about those properties with closed in lower levels..are they vented? are there piles, piers, posts or is it on a crawlspace? What year was it closed-in? Was it permitted? Be very careful when considering properties like this!) I’ve seen listing agents count it in square footage and valuation of the property, but how much is worth when only up to about 30% might be covered?
  • Primary Residence vs. Non Primary Residence: Primary residence is defined by a property you spend 80% of your time in. You will start to see variation in flood policies and coverage if a claim is made if it is determined that your property is not your primary residence.
  • Rate changes are coming: This year X zones increased 8% since October of 2012, V zones are up from 6-8%, AE post firm are up 3-4%, and so forth. Any home that is a secondary property, built pre-firm will be removed from any subsidized program. The product of that measure is a 25% rate increase annually until the average risk premium is equal to actuarially rated properties. Translation: be sure you can afford that property, especially if rated VE!
  • Venting: If your property is in an AE or riskier zone it must be elevated. If it is elevated, it must meet building material requirements and venting requirements. Some examples of approved building methods are piles, piers, posts, concrete shear walls,and full story foundation walls.  At a minimum, vents must start within 12 inches of adjacent grade, there must be one square inch of vent for each square foot of enclosure, vents can not all be on the same wall, and they must be on an exterior wall.

The bottom line is insurance is serious. If you live somewhere it rains, it could flood. Now is a great time to pull-up with your insurance agent and go over these items and make sure you are protected. Not all insurance agents are created equal, so make sure your agent knows their stuff! If you have questions or need recommendation, feel free to contact me.

*Information for this article was sourced from Jeff Brady Allstate, Realtor.com, Biggert-Waters Act 2012, and Realtor.org

FHA Changes For 2013

27 Feb

FHA-Approved-Lender-Seal

FHA has long been one of the more affordable mortgage products for consumers to entertain when looking to purchase a home.  This loan only requires a down payment of 3.5%, which can be in the form of gift funds, and only requires a nominal credit score. Here are the upcoming changes Federal Housing Administration is making to this popular loan program:

  • April 1, 2013 , the Federal Housing Administration is increasing its required monthly mortgage insurance premium (MIP) from 1.25% to 1.35%. While that might sound like much, it can add up to a substantial amount of money over time.
  • Starting June 3, 2013, the FHA will no longer allow you to cancel your mortgage insurance premium (MIP) payments when your loan balance drops to 78% of your property’s value. That means you could be paying a mortgage insurance premium for decades.
  • For loans between $625,000 to $729,000 the down-payment requirement will increase from 3.5% to 5%.

 

If you are on the fence, or entertaining which financing to use, don’t let this happen to you. Secure your FHA financing today before these changes go into effect. Take advantage of the low 3.5% down payment and some of the lowest interest rates in mortgage history, before they rise again.

 

 

 

New Bill Brings Better Housing Benefits for Veterans

24 Aug

President Obama stepped up to the plate for our military personnel and veterans this month. The President signed into law the Honoring America’s Veterans and Caring for Camp Lejeune Families Act. A bipartisan bill that unanimously passed through the House and Senate, made specific and much needed changes to the VA loan program, expand Veteran support and also provide extended medical care for veterans and their families who were based in Camp Lejeune in the years the water was contaminated there.

This bill primarily focuses on the extended healthcare for those affected at Camp Lejeune, but I am a Realtor in a heavily military occupied area and prefer to focus on the reform to the 68 year old, VA Loan program.

Here are the changes:

Surviving Spouses
Prior to the bill’s passing, the only way a military widow or widower could receive zero down financing was if their spouse died with a service-connected disability or in the line of duty. Meaning, if their husband or wife died of normal causes, they were not eligible. Today, the VA’s mortgage benefits are now extended to surviving spouses of veterans who had a permanent, service-connected disability for at least a decade before their death.

Occupancy Requirements
Before the bill was made law, if a service member serving abroad were to buy a home, only a spouse could fulfill the occupancy requirement. Those who were married military couples and single-parent service members were powerless to buy homes while deployed.

This has now been repealed, ensuring that active duty members can meet the requirements of a new home purchase through a dependent child of the soldier.

The VA Funding Fee and Disabled Veterans
For every purchase or refinance loan that the VA backs, it applies a fee known as the VA Funding Fee. This fee helps fund the program and makes sure that it’s independent of the Congressional appropriations process.

Prior to the bill, veteran borrowers that had service-connected disabilities didn’t have to pay the fee, which is usually financed directly into the loan. But recently, because of delays with the VA’s medical system, many soon-to-be veterans have had to wait months to get an official disability rating after receiving a pre-discharge exam by the VA.

Meaning, if a disabled veteran tried to buy a home with the VA home loan program before then, they would have to pay the fee, which forces some VA borrowers into larger mortgages than they can afford.

The new policy provides that the VA will waive the fee if a future veteran is eligible to receive compensation for disability, without having the official rating.

VA Loan Limits

When veterans lives in one of the more expensive areas in the country, such as California, Hawaii, or the Eastern Seaboard, they lose some of their purchasing power because of lowered loan limits on VA-backed mortgages. The limits dictate the amount a veteran can borrow without having to make a down payment. Last year, the loan cap was reduced from $729,750 to $625,500. The bill brought the caps back up to last year’s levels, which are set to stand until after 2014.

Adjustable-Rate Mortgages

At the end of this year, adjustable-rate mortgages were no longer going to be offered through the VA loan program. Under the Act, adjustable-rate mortgages and hybrid ARMs will continue to be available through the VA. This is the only change I am not wild about. I still don’t think ARM’s are a good idea for the majority of borrowers.

Military personnel still eligble for $8,000 First Time Buyer Credit

20 May

I am shocked at how many people still don’t even know about the first time buyer credit (read about it here). What’s more, qualifying military personnel still have until 2011 to take advantage!

Here is what you need to know:

  • you must have served outside the United States for at least 90 days between the dates of December 31, 2008 and May 1, 2010
  • you must be a member of the uniformed service, Foreign Service, or intelligence community and their spouses
  • you must be under contract by April 30, 2011
  • you must close no later than June 30, 2011

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Tax Credit Extended! Bigger & Better and you don’t have to be a first time buyer…

8 Nov

8000-home-buyers-credit1

The House of Representatives passed legislation Thursday that would extend and expand the tax credit for first-time home buyers.

The provision was included in a bill that also extends unemployment benefits by an additional 14 to 20 weeks and lets all companies, not just small businesses, carry back current losses to offset profits made as long as five years ago. The bill passed the House on a 403-12 vote. The Senate passed the legislation 98-0 Wednesday, and President Barack Obama is expected to sign it into law Friday.

The $8,000 first-time home buyer tax credit, which helped home sales rebound this year, was scheduled to expire Nov. 30. The legislation extends it to homes that are under contract by April 30, 2010, and creates a new $6,500 tax credit for owners of existing homes who buy a new principal residence. To take advantage of this credit, buyers must have lived in their old house for at least five of the past eight years.

The legislation also increases the income eligibility limits for the tax credit from $75,000 to $125,000 for individuals, and from $150,000 to $225,000 for joint filers. The cost of the home cannot exceed $800,000.

More than 1.4 million households have benefited from the current tax credit, “the majority of whom have incomes below $50,000,” said Rep. John Lewis, D-Ga.

“This legislation would help even more moderate-income families fulfill the American dream,” he said.

Sen. Johnny Isakson, R-Ga., pushed the Senate to expand the tax credit to “move-up” home buyers. He said this is the last time the tax credit will be extended.

“I urge all Americans, whether they’re first-time buyers who’ve always dreamed of buying a home of their own or someone who’s been gridlocked in the failure of our move-up market, to take advantage of this opportunity,” said Isakson, a former Realtor.

The National Association of Home Builders predicts the extended and expanded tax credit will generate 180,000 additional home sales.

“Today’s action by Congress will further stabilize housing and the economy by creating new jobs, stimulating home sales, reducing foreclosures, cutting excess inventories and stabilizing home prices,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla.

The National Association of Manufacturers praised Congress for expanding the net operating loss (NOL) carry-back provision to all businesses. Businesses normally can use current losses to offset taxes paid in the previous two years, enabling them to get a tax refund. The economic stimulus bill enacted in February allowed businesses with annual revenue of under $15 million to carry back losses for five years. The new law allows larger businesses to get this break as well.

“This provision is urgently needed,” said Monica McGuire, NAM’s senior policy director for taxation. “More than 20 percent of small and medium-sized NAM members reported NOLs in 2008, and we expect that number to double for 2009. This relief will give manufacturers the ability to transform a future tax benefit to cash today and stem the flow of mounting job losses.”

Here is a link to a chart that summarizes the details….

First Time Buyer Tax Credit: Advance Topic “Monetization”

14 Aug

creditI’m sure by now, everyone has heard about the Federal First Time Buyer Tax Credit. You know, the free $8,000 you can get back at tax time if you purchase a home as a first time buyer? There are a few other pieces of information that are worth a mention. But first, let me recap the basics of the Federal First Time Buyer Tax Credit, aka American Recovery and Reinvestment Act of 2009:

  • The tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
  • The tax credit does not have to be repaid.

  • The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

  • The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.

  • Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

So now that we’ve gone through the refresher, let’s talk about some “advanced” topics regarding the credit. Have you heard of monetization? In relation to the credit, it’s the idea that we can turn the credit into actual cash money. An advance on the anticipated credit. On Friday, May 29, HUD issued Mortgagee Letter 2009-15, which outlines the requirements that must be met in order to monetize the first-time home buyer tax credit.

The tax credit can be monetized in two ways:

  • Qualified individuals (Government) may advance the anticipated credit by creating a second lien (a second “loan” against the property to be purchased).
  • FHA-approved lenders may purchase the anticipated tax credit from a home buyer.

SO LONG AS,

  • The borrower does NOT get cash back
  • The second lien cannot be greater than the sum of the down payment, closing costs, and prepaid expenses.
  • Payments to repay the advance do not have to be counted in the home buyer’s qualifying ratios as long as the payment is deferred at least 36 months from closing.

Which means  you will be able to use the advance to pay closing costs or other expenses, like escrows.

The Downside

The FHA’s required 3.5 percent minimum down payment must still come from the home buyer’s own funds and cannot include any of the money from advancing the credit. Which means you have to get together your own cash for a down payment when using an FHA loan. The only way to get around it is getting a “gift”.  That’s a whole other topic, though. 😉

So as always, I encourage you as a home buyer, to do your homework. Get with a lender and a Realtor. Realize that some people may tell you no along the way, but if you don’t A-S-K, you don’t G-E-T.

Good Luck!

The USDA Loan Program

13 Aug

USDA-RD_web

The first time I heard someone mention a USDA loan, it threw me for a loop. I thought about it for a second, and the only inference I could make is that the USDA is the government regulatory agency for farmers. So, I assumed it was a loan program just for farmers and acreage. I was wrong.  Actually, the USDA loan program is one designed to stimulate the development in “rural” areas, but it’s open to anyone who wants to buy a single family home.

By definition, the USDA loan is a government insured loan program that is designed to make qualifying areas more affordable. In relation to Savannah, anything in Chatham or Effingham County, so long as it’s West of I-95, qualifies.  Stop and think about that folks. That means that a huge chunk of Pooler qualifies, as well as Port Wentworth, Rincon, Guyton, and Springfield. Now that you know where you can get this loan, let’s look at some other qualifications.

  • The USDA loan is considered “100% financing“, which means you don’t have to put any money down. This has the potential to be great! In many cases, you can buy a home for less than what you pay in rent.
  • There is no mortgage insurance premium, like there would be with an FHA loan. ( This is money that is paid into escrow to insure your lender against loss or default on your loan).
  • There is no maximum loan amount. As long as your income and credit can support it, there is no cap on the amount of your loan.
  • Think your credit score is in the can and you can’t qualify? All you need is a credit score of 580 to qualify.
  • ALL USDA loans are 30 year FIXED at whatever the current market rate is.  Today is 5.26% for example.
  • You can purchase re-sell or new construction properties.
  • You may even get approved with Chapter 7 bankruptcy!

There are some downsides to the program:

  • There are income limitations. These limitations are based on your income, and number of people in the household.
  • Also, I think it’s wise to plan to stay in your home a minimum of 3-5 years. At that point, you may have enough equity in the home to move up.

Not to worry though. It’s a great opportunity for many people to purchase a home that aren’t cash friendly. Despite what the media reports, real estate is still a very sound investment, as long as you go about it the right way. Be responsible. Do some investigating. Speak to lenders and get the help of a Realtor!

http://eligibility.sc.egov.usda.gov/eligibility/incomeEligibilityAction.do

USDA Home Loans in Washington