Six things every Veteran should know about purchasing their home!
purchaseperfect | 15 December, 2008 00:41
When it comes to purchasing a home there are several things every veteran must know about their loan and their lender to make sure they get the best home loan possible.
Eligibility, funding fee's and APR's can be confusing. This blog is intended to help demystify the purchase process for Veterans.
1. Federal VA loans do not require a down-payment. A Veteran that meets all eligibility requirements for a VA loan is not required to make a down-payment when buying a home. Furthermore, your closing costs can come in the form of a seller concession. This is when the seller agrees to pay all or some of your closing costs as a contingency to the offer, leaving the Veteran with no out of pocket expenses at closing.
2. Veterans loans are not underwritten based on Credit alone. It is a common misconception that you can not get a home loan if you have a past bankruptcy on your record or late payments on your record. Not True. The Veterans credit will be considered but not scrutinized as heavily as some standard conventional programs. Many Veterans have extenuating circumstances that have caused checkered credit histories for them, this will not prevent you from obtaining a loan. Your loan is based primarily on your debt to income ratios and your eligibility.
3. The VA does not discriminate on what property types are eligible. Current VA loan limits for most states are set at $417,000 and there is talk of raising the loan limits. There is much stigma surrounding both FHA and VA loans regarding properties eligible for finance. This is an old stigma and a hurtful one. The VA will only discriminate on make sense issues, like a leaky roof, cracked foundation, noxious odors or issues that affect economic life or the livability of the house. If you can afford the house, most properties will qualify.
4. Veterans loans qualify for the best interest rates in the market! Perhaps the best feature of VA loans are the fantastic interest rates Vets qualify for. Because the loans are based on more than just conventional guidelines, Veterans get the same if not better interest rates than standard conventional borrowers do from banks. Even better is you qualify for this rate at 100% loan-to-value, whereas other banks will limit you to 80%.
5. There is no PMI attached to Veterans Loans. Unlike standard conventional loans that require Mortgage Insurance on all loans over 80% loan-to-value, VA loans have no PMI. This means the veteran saves a ton of money monthly when financing 100% of their homes value. Instead of PMI the VA charges a funding fee which varies based on the amount borrowed and how many times the veteran has used their eligibility. This funding fee allows Veterans to secure these fantastic interest rates and loan amounts.
6. Eligible Veterans can get their certificate of eligibility through a trusted local VA lender and apply for financing free. Va Loans are a fantastic resource for Veterans. Veterans should contact a local lender or their state VA and find out if they qualify for a Veterans loan. Some States even have local Veterans programs that have special rates and lowered funding fees for Veterans. If you are a veteran contact your lender or Veterans Administration for more info on Veterans loans.
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Purchase Comparison FHA 97% vs. VA 100%
purchaseperfect | 14 December, 2008 12:53
Most of the business I have done over the last 6 months has been Government business, particularly FHA. I wanted to post a quick comparison to illustrate the huge advantage presented to Veterans over other First Time Home Buyers.
The following comparison is for a $150,000 purchase, and both loans are 6.5% for comparison. Here in Madison, WI $3,600 is a pretty typical figure for annual taxes and Homeowners Insurance runs about $500/yr, but can be less.
FHA Loan
Down Payment (3%) $4,500
Principal and Interest Payment $933.45
Monthly Mortgage Insurance $60.63
Total Monthly Cost of FHA Loan $994.08
VA Loan
Down Payment (0% Down)
Principal and Interest Payment $968.49
Monthly Mortgage Insurance $0
Total Monthly Cost of VA Loan $968.49
You can see in this comparison the VA loan has 2 distinct advantages over the FHA loan, the first is the obvious lack of a down payment. If this were your home I'm sure you could think of something to do with that extra $4,500 you did not use for down payment. The other advantage is even with no down payment, the VA loan is $25.59 cheaper on a monthly basis than the FHA loan.
This illustration is intended to show Veterans, Realtors and Lenders the distinct benefits of using the Federal VA loan whenever possible.
It should be said the numbers in the above comparison include the 2.15% Funding Fee charged by the Veterans Administration and 1.5% Upfront Mortgage Insurance Premium charged on FHA Loans. FHA is considering implementing risk based MIP which would have an effect on this comparison. Furthermore Veterans with a service related disability would further reduce their cost, as the 2.15% VA funding fee can be waived.
If you are interested in learning more about the Federal VA Loan and how it can be used to benefit you, or a client please feel free to contact me for more information.
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Buying a Foreclosure or Short Sale - A Few Things Buyers Need to Know
purchaseperfect | 14 December, 2008 12:52
More and more often I have been dealing with buyers looking for "Short Sales" or "Foreclosures" attempting to get the best deal they can. Sometimes these buyers are in a lower price range (here in Dane County the Median Home Price comes in just over $190,000) and they feel foreclosures/short sales are their only options, and sometimes the buyers are investors looking for a good opportunity to "Fix and Flip" a property.
If you are the former, and you are looking to purchase a Short Sale or bank owned property here are a few things you need to know before you begin your home search.
A) Just because Foreclosures are generally on the lower end of the range does not mean a Foreclosure is necessarily your best option. Many Foreclosures or Short Sales require significant repairs before they can be considered live-able. Some of these defect may affect your ability to obtain financing for the home. After you purchase the home and put all of the money in you may end up with a better deal just buying a home that has already been renovated and fits your needs right away.
B) A Foreclosure is a Bank Owned Property and Banks accept the "cleanest" offers they receive. More often than not a Real Estate division of a bank (REO) will accept a lower priced cash offer over a comparable full price offer with a financing contingency. These "cash offers" generally come from investors, can close very quickly and have no contingencies allowing the buyer to back out of his/her contract.
C) A Bank may take up to 60 days to approve a property for Short Sale. A buyer working in a tight time frame to purchase may simply find the process of purchasing a Short Sale tedious and strenuous. The waiting and wondering can be very stressful for some buyers, while some may handle it fine. Be aware that if you are writing an offer on a short sale property you may wait a long time for an answer either way.
D) Make sure you are working with an experienced Realtor and Lender when buying a Short Sale/Foreclosure. An experienced agent will know how to write the strongest offer you possibly can, therefor increasing your likelihood of having your offer accepted. An experienced agent will also assist in coordinating loan commitment and title work to make your loan process as smooth as possible and can advise you as to what physical defects may affect your ability to purchase the property.
E) Get all of your Ducks in a Row before applying for a loan/writing an offer. Bank owned Real Estate divisions want the cleanest offer possible. Buyers needing down payment assistance, seller paid closing costs and other financing contingencies are looked at less favorably then those buyers with their own down payments and closing costs. Work with an experienced lender to make sure your credit is in shape, you have a down payment if necessary and your offer is as clean as possible to increase your chances of Bank acceptance.
Making sure you have a solid offer free of as many contingencies as possible is the best way to increase your chances of having your offer accepted. Remember, buying a foreclosure or short sale does not mean you will receive the best deal in your price range. ALWAYS contact an experienced Real Estate Agent to assist you in your home search.
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Tax implications of the 2008 Housing Rescue and Foreclosure Prevention Act
purchaseperfect | 10 December, 2008 10:44
The following information is provided by a Licensed Tax Professional in the State of Wisconsin. Any information included in this blog is not tax or legal advice and should not be construed as such.
The passing of the Housing Rescue and Foreclosure Prevention Act has had a large impact so far on my business. To simplify confusion and educate others I have asked a colleague to briefly explain the tax implications of this act, and what it means to homeowners and First Time Home Buyers.
Many know the Housing Act created a large tax incentive for First Time Home Buyers. The Government defines a First Time Home Buyer as "someone who has not owned a principal residence in the United States during the three year period that ends on the purchase date."
"The Housing Act creates a temporary new federal income tax credit. The maximum amount of this new credit is the lesser of (1) 10% of the purchase price of a principal residence or (2) $7,500 (or $3,750 for those who use married filing separate status). The credit is refundable, which means it can be used to offset your entire federal income tax liability with any remaining credit refunded to you."
"The credit is generally available for principal residence purchases after 4/8/08 and before 7/1/2009. For a newly constructed home, the purchase date is considered to be the date you take occupancy. If you purchase a residence from your spouse, ancestor lineal descendant or other related parties you are ineligible for the credit."
"The credit is phased out or completely eliminated if you adjusted gross income (AGI) is too high. The phase out range for unmarried individuals and married individuals that file separately is between $75,000 and $95,000. The phase out range for married joint filers is between $150,000 and $170,000."
"The credit is really just a loan from the government. You must repay it (without interest) over 15 years starting with the second year after the credit was claimed on your 1040. "Each years repayment will be added to that years tax bill. In addition, if you sell the home, or stop using it as your primary residence before the credit has been repaid, an accelerated repayment clause may apply. If so, the unpaid credit balance must be paid with your form 1040 for the year when the triggering event occurs."
This information was provided courtesy of Tom Schloesser, CPA, Hometown Tax and Financial Sc. 110 Enterptise Dr #104 Verona, WI 53593. 608-845-5511
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Is a short sale the remedy for a homeowner staring at foreclosure?
purchaseperfect | 10 December, 2008 10:41
Many, many, many homeowners have found themselves forced to make a tough decision, to feed their family or to keep a roof over their head. And if you're one of these people or have a friend or family member that can just no longer make it you know it's a painful embarrassing situation to be in.
I'm talking to clients on a weekly basis in this situation, "I could make my payment until my Husband lost his job" is what you're saying, or "I thought I could refinance out of my ARM when my home appreciated and now I owe more than my home's worth!"
Some people did just buy too much house, or made a bad financing decision. I'll be the first one to tell you the blood from this mortgage crisis is on every ones hands. The Presidential nominee's will tell you the lenders ripped you off, and the media will blame it on the economy. The bottom line is the bank is guilty or creating the product, and the banker is guilty for selling it wrong, but in the end the consumer is just as guilty for signing the papers. And now WE'RE ALL paying the consequences.
If you are in this situation, and you don't want a foreclosure to ruin your credit for 4 years (5 very soon) and your chances of getting a conventional loan, consider a better option, a SHORT SALE.
A short sale is what occurs when you communicate to your mortgage servicer your need to get out of your financial obligation on the home and the servicer agrees to approve a sale on the property for less than what is owed, forgiving the remaining debt. It is a better option than foreclosing for most servicers because it is very expensive and time consuming for them to foreclose on your house, and in most cases the short sale will net them more proceeds in the end.
I work with a network of full time Real Estate Agents that are experienced in working with foreclosures, negotiating short sales for sellers and writing offers for buyers looking for a good deal. If you are unsure of how to negotiate a short sale yourself, or you would like more information regarding the process or even how to purchase a short sale please contact me and I will refer you to an experienced Real Estate Agent to help you navigate your situation.
You have options, if you cannot negotiate a short sale you may qualify for loan modification. A loan modification can be negotiated either by the seller or by a company specializing in modifications (for a fee). You may be able to freeze, or reduce your interest rate for a period of time if you have yet to receive a foreclosure notice.
The worst thing you can do is nothing! There are still good people here to help!
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Cheap homes for Teachers, Police and Firefighters, EMT's
purchaseperfect | 09 December, 2008 19:27
I wanted to shine a little light on an amazing program that does not get much promotion, the FHA Good Neighbor Next Door home loan. This is a program to help borrowers who are employed in Law Enforcement, pre K through 12thgrade Teachers, (Public or Private Schools) Firefighters and Emergency Medical Technicians (EMT's).
The highlights of the program are as follows:
A borrower that falls into one of the categories listed above, is eligible to purchase a HUD foreclosure at a 50% discount from the list price. This means an incredible buying opportunity for anyone in these categories that intends to purchase and occupy the property as their primary residence for at least 3 years.
To be clear, this is not a "fix and flip" program. HUD requires owner occupancy for a minimum of 3 years with this program and imposes strict penalties should the owner occupancy rule be broken. Borrowers are required to sign a "silent second" mortgage on the property at closing securing the other 50% of the equity should the terms be violated.
The Good Neighbor Next Door Program only reqires a $100 down payment! Closing costs and prepaid items will still be the responsibility of the borrower.
Other highlights of the Good Neighbor Next Door Program:
- Eligible borrowers must live in the area they are purchasing the HUD property
- To purchase a HUD property through the program you must be working with a Realtor (you may work with your own agent, or we will recommend an agent for you)
- Only single family homes/condos qualify, no duplex or triplex, etc...
- No first time home buyer requirement
- Earnest money of at least 1% is required
For more information, contact me, for a pre-approval consultation.
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Are you holding your breath for 4.5%?
purchaseperfect | 09 December, 2008 19:24
There was recently a leak from somewhere in the treasury reporting the treasury may be working on a plan to push mortgage rates as low as 4.5%.
This means a mortgage in Madison, WI or anywhere in the United States would be offered at a historically low interest rate. The goal of the program is of course to stimulate buyers, to bring them "off the fence" if you will.
There is a ton of "buzz" about this, rumors, a lot of misinformation, and consumers need to know a few things.
First, the Treasury has not pledged to institute this program. They may create this program, and if they do, there is not a timeline for it yet. Second, even in the article the program was quoted as a First Time Home Buyers purchase product ONLY. This means that though rates, which are set by market conditions, not the treasury, could follow for refinances, there is no indication of such as of yet.
Soooo...here we are, it sounds good, everyone wants it, but please do not let a rumor, that has not been oficially credited or discredited, begin affecting your logic! I've locked consumers at incredibly low interest rates this week, and a few of those people are "waiting" for the 4.5% rates.
Last week, when rates dropped significantly it was as a result of the Treasury announcing a program to buy mortgage backed securities(mbs). The result was a large increase in consumer confidence, and the announcement had results as intended.
As of writing this blog the treasury has still not released any verbiage on exactly how or when this program would be implemented, investors are still in the dark. We can learn then from these Treasury actions, that this market is so volatile that simply getting on the news and announcing a direction can cause large market movements in this economy.
If you are a consumer, and you are holding off on locking that rate because you want your 4.5%, you at least need to know it is not likely to happen. You are taking a risk, you are gambling. The program as it sits right now is for First Time Home Buyers.
If you are looking at a refinance, consult with your loan officer. See if you can put in a longer lock on your loan if you feel the rates will come down that low. Rates are incredible right now, and you could miss your opportunity. There are 19 reasons to refinance, now is the time!
Finally, I want to emphasize something Jeff Belonger has been emphasizing forever. Your mortgage is not about you rate, it is about your payment. If the $50 or $100 is going to make or break you you have more problems than your interest rate.
Don't miss your chance waiting for something that may never come. If rates do get to 4.5%, you'll be saving a whole 1% and may want to refi again! I'll leave you with this, before the story broke late last week, what did you think about your 5.5% opportunity?
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Is Goverment Intervention really a "Stimulus," or is the Economy Better Off Without?
purchaseperfect | 25 November, 2008 18:28
The link below is an article written by Meg Sullivan, outlining the research done by two UCLA economists that argue Government Intervention makes recovery from a depressed economy worse, not better.
I found it pertinent to note now as the argument has never been more relevant. Certainly we are facing two different situations, and different circumstances. Unions and Corporations that played a role in the recovery from the Great Depression (or lack thereof) have been replaced by struggling job markets and credit strapped banks, but the central issue remains the same, will Government Intervention hurt or help our economy recover?
The Economists argue that FDR's New Deal policies led to increased labor wages, and increased unemployment, while the elimination of anti-trust prosecution led to collusion and an increase in the costs of goods of services.
If you aren't sure where you stand on the stimulus package, or the Government Intervention in the market this article is a good place to start. Clearly whatever happens, much care needs to taken to be sure that the Government does not in effect hinder the natural recovery process of the markets.
I'm reminded of a quote: "If we choose to ignore history, we are doomed to repeat it."
I am certainly not going to promise you any priceless wisdom on this issue, nor will I pretend to understand the economy to the point where I could sustain a coherent argument either way, but I find it interesting that once researched thoroughly, the Man credited for getting our Country out of it's largest economic crisis, may in fact have been responsible for prolonging it!
Use your voice, speak your mind, and follow your heart...
http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx?RelNum=5409
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Affordable Housing: Real Down Payment Assitance in Dane County
purchaseperfect | 25 November, 2008 18:25We're fortunate here in Dane County to have several State and local agencies providing Down Payment Assistance to eligible First Time Home Buyers that qualify. Affordable housing and Dane County are not always synonymous terms, so many of these agencies have been created to try and bridge that gap, to make rental housing and home ownership affordable for those families making less that the county median income here in Dane County.
One of the most important programs here in Dane County is offered to eligible first time home buyers in the form of a deferred payment loan in the amount of $9,000. Dane County Housing Authority (DCHA), provides their HOME loan to eligible applicants with annual income under 80% of county median income. With the median home price in Dane County hovering around $190,000, this loan is enough to provide the 3% down payment required by most First Time Home Buyer programs and to cover that first time buyers closing costs.
The loan is required to be paid back upon non-owner occupancy, cash out refinance or upon future sale. DCHA also requires the home buyer has 1% of their own funds into the transaction. This could be in the form of earnest money, prepaid homeowners insurance, an inspection paid for by the borrower, or the borrower can pay closing costs or make a 1% down payment.
The loan is available for purchase of a duplex, condo or single family home. To be eligible you must be a first time home buyer and be working with a loan program that qualifies for DCHA HOME funds.
I have used the program several times with great results. Many deserving homeowners, who may be ready for home ownership but may not be able to save for the down payment and closing costs, have found DCHA to be their helping hand. The administrators of the program are HUD certified housing counselors, and a home buyers education course is required for the program.
Since 2000, DCHA has provided 142 down payment/closing cost loans to first time buyer households at or below 80 percent County Median Income (CMI). In addition, approximately 2000 households(roughly 250 annually) have completed the DCHA First Time Home Buyer courses since 2000. DCHA hosts and coordinates 16 pre-purchase course annually and was a founding member of the Homebuyers Roundtable of Dane County.
If you are a Real Estate Professional looking for more information regarding DCHA click here. If you are a home buyer and you want to know if you qualify for HOME funds for down payment assistance please contact me to take a quick mortgage application and discover what your options are.
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Clearing the Fog: Explanation of the 2-1 Buydown
purchaseperfect | 25 November, 2008 18:22
Below is a detailed explanation of a 2-1 rate buydown for a 30 year fixed mortgage, and how it can be advantageous for a builder/broker to offer this program to a potential buyer.
Basically, a 2-1 buydown means the note rate on the loan is "bought" down, 2% for the first year, 1% for the second year and for years 3-30 the loan "caps," at it's fully indexed market rate. This loan is particularly appealing to those borrowers skeptical of the current mortgage market.
Taking a loan significantly lower than the current market rate in effect opens a 3 year window with which the borrower has time to refinance should the rates come back down. If rates do not drop, or if they go up the buyer has the peace of mind of knowing he/she has the lowest available interest rate at that time.
This loan would appeal to a prospective buyer who may have just taken a new position, relocated or graduated from College. The buyer may have a guaranteed wage increase within two years, making this 2-1 buydown very attractive as he/she can buy the home he/she wants now, and make the fully indexed payments later.
This mortgage should not be confused for an Adjustable Rate Mortgage, it is simply a 30 year fixed with graduated payment for the first two years. The borrower is qualified at the fully indexed rate, and the rate can never go above the market rate set at lock in.
The cost can be paid any number of ways. The seller can offer the buydown as a buyer incentive, it can be paid by a DPAP or gift, or it can be paid by the lender. The difference in payments is staggering, especially on larger loans.
I am including an example below of the savings a borrower will realize on a $300,000 mortgage at a note rate of 6.5%.
|
Note Rate |
Payment |
Savings |
Annual Savings |
Total Savings |
|
4.5% |
$1520.06 |
$376.14 |
$4,513.68 |
|
|
5.5% |
$1703.37 |
$192.83 |
$2,313.96 |
|
|
6.5% |
$1896.20 |
$0 |
|
$6827.64 |
In this example the total cost of the buydown to the lender, borrower, or seller would be $6,827.64. This cost can be split between the lender and seller as well.
In contrast, for simplicity's sake let's say the seller offered a $6,827.64 reduction in costs as an incentive to the buyer. For the Seller's bottom line there is no difference between the price reduction and the buydown, but a 30 year fixed mortgage of $293,172.36 at a market rate of 6.5% leaves the buyer with a payment of $1,853.05/mo.
For a buyer that is not concerned with the rate, or the initial payment on the home, the cheaper sales price yields a larger savings over the 30 year period ($15,534.00). However, most homeowners refinance their home at least once, most every 3-5 years, and you are this homeowner, you would never realize the reduction in sales price cost wise like you would the buydown.
Clearly we are talking about two different borrowers here. One is skeptical of the market or new to the housing market, the other is an experienced borrower who may choose not to refinance. In these two cases, different loan options will yield different results for the two buyers, however knowing these options and being able to take advantage of your options means you are an empowered buyer!
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