HOME BUYING - THINGS HAVE CHANGED THIS SUMMER

Credit Reports: One May Not Be Enough


This summer, Fannie Mae instructed lenders that they should adopt a new policy that would include a second review of an applicant's credit report just prior to closing. Why? The answer is simple: the credit profile of a borrower may have changed between the time of the initial review of the credit report and the time of closing.

How will this impact the home loan?

The potential impact to a borrower who has utilized credit to make significant purchases after the initial credit report could include:

• A delay in closing
• Increase of closing costs and/or interest rate
• A decreased loan amount
• Denial of the loan

That's right, in the worst-case scenario, a change in credit could even result in a loan being denied - even after an original approval had been granted.

What should homebuyers do (or not do)?

In order to eliminate any possibility of potential problems before closing, anyone in the application process should use credit sparingly and make sure they adhere to the tips provided below by credit expert Linda Ferrari of Credit Resource Corp:

• Don't do anything that causes a red flag to be raised by the scoring system.
• Don't apply for new credit of any kind.
• Don't pay off collections or charge offs.
• Don't max out or over charge on your credit accounts.
• Don't consolidate debt onto one or two credit cards.

This list is not comprehensive, but it does give you a peek into situations that could create issues and could also be contrary to some ideas you have read previously.

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JULY IS HERE - WHAT IS FHA DOING ABOUT PENDING CHANGES?

The Federal Housing Administration announced back in the fourth quarter of 2009 that they are planning to tighten a number of rules regarding FHA Government backed loans.  They increased the premium for mortgage insurance, changed a number of other metrics and announced that more serious changes were to be put out for public comment.  Today (July 2010) the FHA has issued announcements as follows for public comment:

1.  Tighter restrictions and higher down payments for borrowers with lower credit scores (below 620).  Lower scores will result in a 10% downpayment compared to the current 3.5%.

2.  The total amount of money paid on behalf of a buyer including all seller help, Realtor credits and lender credits will be limited to 3% of the purchase price.  Today it is limited to 6%.  Seller help is a common factor in most home purchases today and the impact of this change will be significant.

These changes, if put into practice, will make it more difficult to get into a home for most borrowers.  Simply stated for lower scored borrowers it can add up to 13% to the up front money required to qualify for a loan and up to 3% for higher scored borrowers. 

It is expected that the above will be placed into practice sometime after the comment period ends in August.

It may well be worth your efforts to accelerate your home search to avoid these new regulations saving you a significant amount of up-front money. 

Seek out a Ziprealty agent to get more details and lender perspectives on these matters.

POST TAX CREDIT CONSIDERATIONS FOR HOME BUYERS

MAY 1st,


The tax credit benefit for home buyers has expired. For those that were able to take advantage congratulations!!

However, if you are in the market for a home purchase, even if you did not get into a contract by April 30th , you still have very strong reasons to move forward quickly rather than waiting. Here are the main points of interest:

1. The Federal Reserve has ceased it’s purchase program for Mortgage Backed securities (MBS) the reason they have been buying these MBS packages has been to create a steady flow of new funds for mortgages AND to keep interest rates as low as possible. In order to have the open investment market absorb what the fed has been doing the interest paid on purchased MBS’s will have to increase to offset the risk of these investments. Along with that risk comes higher mortgage interest rates as well. So acting now will help you avoid the inevitable increases in rates.

2. The Federal Housing Administration (FHA) has announced it’s intention to implement several costly increases in FHA guaranteed loan programs. Some have already been executed. Others will follow in the early days of summer. The affect on home buyers will be to increase the amount of up front money required to make an FHA purchase from the current 3.5% to over 6.5% AND the rates will be even higher for buyers with lower credit scores. Acting now clearly will enable you to benefit if you don’t have larger amounts of cash for down payments.

Both of the above actions will come together to impact the amount of home you will qualify for, and possibly put you out of the market for the type of home you desire to live in.

ACT NOW IF YOU CAN!! IT’S WORTH YOUR ATTENTION.

FUNDS FOR THE COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM ARE BACK!

This home buying incentive provides a forgivable down payment and closing cost loan to first time homebuyers with family incomes of 80 percent or below the area median income. (First time homebuyers are defined by federal standards as not having owned property for 3 years or more).

What are the benefits?

$5,000 is awarded as down payment and closing assistance. Award is structured as a 5-year loan, forgivable 20% each year.

What else do I need to know?

• Contract of Sale must be executed on January 1, 2010 or later. Contracts that have already gone to settlement do not qualify.


• Property must be located in Baltimore City.


• Buyer must contribute at least $1,000 towards purchase and must use the property as their primary residence.


• Buyer must attend homeownership counseling and obtain a pre-purchase counseling certificate.


• The buyer must secure an HQS (Housing Quality Standard) Home Inspection on the property. (Qualified home inspectors can be found at www.ashi.org or www.nahi.org).


• The home must be free of any flaking, peeling or chipping paint surfaces.


• Closing on the property must occur within 90 days of the contract date.


• Household income cannot exceed the following amounts (2009):


1 person $44,800
2 person $51,200
3 person $57,600
4 person $64,000
5 person $69,100
6 person $74,250
7 person $79,350
8 person $84,500

**************THE FED'S NEW STRATEGIES AND HOW THEY AFFECT YOU********

The Fed has told us repeatedly that their massive purchasing program of Mortgage Backed Securities is just about over - and this translates to home loan rates rising in the near future.


As you can see in the chart below, the amounts of Mortgage Backed Securities the Fed is purchasing are slowly dwindling, as the program is set to wrap up by March 31st, and are clearly trying to ration out the remaining portion. Last week, the Fed purchased $11 Billion in Mortgage Backed Securities, which leaves them with $66 Billion to spend out of their original $1.25 Trillion allotment. So about 95% of the total has already been spent and has purchased about 3 out of every 4 home loans during the past year. When such a large buyer leaves the market, it is very likely that prices will worsen.

This is very important because as the Fed has less money to last through the remaining months of the program, their ability to keep home loan rates low via their purchasing power will wane. Those who can take advantage of currently low home loan rates do not wait, as the clock on these historically low rates is ticking.

The Fed is also planning to switch their method of controlling interest rates and money supply from the commonly watched and monitored Fed Funds Rate, to a new benchmark based on interest they pay on excess bank reserves they hold out of the monetary system.

Banks have been ignoring the current benchmarks and charging inter-bank rates as they see fit. The Fed wants to fix this by using the amount of interest they pay on excess reserves as the new benchmark, since the Fed has total control of this rate, which should be right at or just under the Fed Funds Rate.

The one major take-away from this discussion is that the Fed is getting their ducks in a row as they prepare to push interest rates higher. And when they do increase rates, the Fed does not want any obstacles that may undermine their plan.

Best and worst places to be selling a home

Where's the easiest place in the Baltimore area to sell a home for the full asking price? Catonsville, by one measure.

Real estate brokerage ZipRealty, analyzing the "hottest" and "coldest" ZIP codes in metro areas it tracks, said the average sales price in in 21228 was 99.9 percent of the average listing price during the last three months of the year. That's a difference of $257.

On the other end of the spectrum is 21216 in West Baltimore, where sellers got 87 percent of what they'd asked for. With an average list price of about $103,000, that's a difference of more than $13,000.

Sales price vs. asking price isn't the only measure of a market's health. Sometimes it's just a yardstick of how realistic sellers are being about what buyers will pay. But it's certainly one way to get at the push-and-pull of supply compared with demand.

Here's ZipRealty's full hot-and-cold list:

HOT:

1. Catonsville, 21228. Average listing price: $282,701. Average selling price: $282,444. Sales price as a percentage of list price: 99.9 percent.

2. Laurel, 20723. Average listing price: $319,093. Average selling price: $315,355. Sales price as a percentage of list price: 98.8 percent.

3 (tie). Laurel, 20724. Average listing price: $274,333. Average selling price: $270,062. Sales price as a percentage of list price: 98.4 percent.

3 (tie). Abingdon, 21009. Average listing price: $241,064. Average selling price: $237,295. Sales price as a percentage of list price: 98.4 percent.

5. Nottingham, 21236. Average listing price: $241,716. Average selling price: $237,644. Sales price as a percentage of list price: 98.3 percent.

COLD:

1. Baltimore, 21216. Average listing price: $103,211. Average selling price: $89,783. Sales price as a percentage of list price: 87 percent.

2. Aberdeen, 21001. Average listing price: $253,409. Average selling price: $236,710. Sales price as a percentage of list price: 93.4 percent.

3. Baltimore, 21215. Average listing price: $93,048. Average selling price: $87,131. Sales price as a percentage of list price: 93.6 percent.

4. Baltimore, 21209. Average listing price: $291,610. Average selling price: $273,266. Sales price as a percentage of list price: 93.7 percent.

5. Edgewater, 21037. Average listing price: $521,505. Average selling price: $489,545. Sales price as a percentage of list price: 93.9 percent.

JANUARY 21, 2010 FHA ANNOUNCES POLICY CHANGES - PLEASE READ

Announced FHA Policy Changes:


1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending

o The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.

o If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.

o The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.

2. Update the combination of FICO scores and down payments for new borrowers.

o New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.

o This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

3. Reduce allowable seller concessions from 6% to 3%

o This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.