A Missouri couple thought they were having their $680,000 dream home built in the perfect location. They purchased a lot in the gated community of Ocean Hammock, an exclusive community that is accessible by beach or air.
As you can see from the photo, it’s a three-story home with balconies from which to enjoy the impressive view. What a vision! The only problem is that Keystone Builders constructed it on the wrong lot, not the land Mr. and Mrs. Voss bought.
How could this happen? East Coast Land Surveying incorrectly marked off the stakes for the home — and didn’t catch their error during any of the three surveys they conducted during the construction process.
The mistake was finally caught by a different surveyor working in the area, but only after the home had been rented out several times.
“We are in total disbelief,” the Vosses told local media.
Both the Flagler County Home Builders Association and the Flagler County appraiser said that houses built on the wrong property “happen more often than people think.”
Perhaps a trip down to the construction site early in the process is a prudent step for home owners to take. In the case of the Vosses, it will be interesting to find out what happens next.
Source: Housing Wire
The one who holds the money makes the rules.
If the underwriter says your debt ratio is too high, you will be denied. (And be forewarned: the spreadsheet you made showing you can afford it means nothing. The underwriter will not give it a moment’s glance.)
As I mentioned in a previous post, your loan officer can calculate your debt-to-income (DTI) ratio for you. But what if you want to do it yourself? What if you want to double-check the loan officer? Here’s how it’s done.
1) Take your gross income (before taxes and other deductions). Use the highest figure on your W-2 forms. You must have been employed in the same line of work for the last two years in order to count the income. If you have a brand new part-time gig, it won’t count. If you have brand new bonus income, it won’t count.
For self-employed people, use the Adjusted Gross Income near the bottom of page one of your tax returns. Again, you must be self-employed for the last two years. If you have a new business, you cannot count your self-employment, even if it is in the same line of work as your previous W-2 job.
2) Add up your monthly outgo. Use all of the minimum payment obligations that show on your credit report. If you pay your entire credit card bill each month, you do not use that balance in your outgo; instead, use only the minimum payment required.
Do not count expenses that do not show on a credit report such as phone, utilities, cable, gas or bus, or grocery.
Add in the new proposed mortgage payment for the house you want to buy. Include principal, interest, taxes, insurance, and monthly mortgage insurance if putting less than 20% down. (You can use the easy calculator at MortgageHelper.com here.)
3) Divide your total outgo by your gross income. This is your DTI. Most mortgage lenders want to see a max of 38% DTI, but some will go higher if the rest of your application is strong. The highest I’ve seen is 49% DTI with a 800 credit score and significant cash reserves.
For example, if your gross income is $5,000/mo. and your outgo is $3,000/month:
5,000 divided by 3,000 = 60 DTI. That is too high and will be denied.
You would then need to pay down debts and/or choose a less pricey house.
By knowing your price range, you avoid the disappointment of being denied. And again, if it seems too complicated to calculate yourself, all loan officers at mortgage companies and banks are happy to do it for you. They love using their handy HP calculators, so don’t hesitate to ask.
Happy house hunting! It’s a good time to own your own home.
Emily Johnson found the perfect house for her family. Four bedrooms, three baths. The master suite had a garden Jacuzzi tub, just what she needed after a long, hard day of work. There was plenty of street appeal, too. After hours of looking on the Internet, she’d found The One.
Her next step was to contact the real estate agent who was listing the house and ask to see inside.
Emily fell in love.
That evening, she brought her husband out to see the house, and he agreed with her that it was just what they wanted. They asked the real estate agent how they could make an offer. And that’s when everything fell apart.
You see Emily, like so many other house shoppers, had done everything wrong — starting with her initial search.
What Went Wrong?
When you want to buy a house, your first step is not searching the Internet for what you want. Your first step is to find out how much house you can afford. That way, you can tailor your search to what is appropriate and realistic. What’s the point of falling in love with a house that is out of your price range? Why set yourself up for disappointment?
A pre-qual is a quick evaluation by phone. The loan officer will ask you a couple questions about your income, outgo and down payment, then give you an estimate for the loan amount and home price you can qualify for.
No credit check is needed. To make sure your credit report is not pulled without your authorization, do not give out your social security number.
Once you know your true price range, you can cruise the Internet to your heart’s delight. By looking at homes you can afford, you set yourself up for success and avoid heartbreak.
A new Gallop poll suggests Americans are ready to buy real estate again. Optimism about the housing market is up, especially in the West where 72% of respondents said they expect home values to rise. And it’s no wonder.
Home prices have recently risen by double digits in several Western states, and especially so in California.
People in the South are slightly less optimistic, where 54% said it’s a good time to buy.
Midwestern folks seem to agree with 53% home values are rising.
Skepticism runs higher in the East where only 44% expect an increase in values.
Home owners are more optimistic than renters. Of all Americans who own a home, a big majority at 81% expect real estate prices to increase. On the other hand, only 44% of renters expect prices to increase.
Perhaps there’s a marketing clue there for real estate agents and mortgage lenders. Current home owners are feeling more urgency to sell and move up before prices continue upward than are renters.
And speaking of pessimism among renters, those who would have eagerly sought loan approval in the past are now of the mindset that they won’t qualify. A surprising 56% of renters said in a national consumer survey that fear of rejection is holding them back for applying for a home loan. The two biggest concerns are credit and income qualifications.
Good News for Home Buyers
It comes as a surprise to some that perfect credit is not required. Not all lenders have the same requirements. If you fear that your bank is too strict, call a local mortgage broker. Brokers, somewhat like travel agents, have access to multiple wholesale lenders. A mortgage broker will do the shopping for you. Brokers know which lenders will go down to a 620, or even lower, credit score for an FHA loan. And the good news is that a mortgage broker does not necessarily cost any more than a bank. Nowadays, many small and midsize lenders are both brokers and direct lenders (with their own money). This gives them greater flexibility and gives you a greater chance of approval than going to a bank or credit union that has only their own money and strict guidelines to offer.
Something to Think About: How You and I Control House Prices
When people think the economy is improving, they are more willing to spend money; therefore, their mindset actually improves the economy. The same goes for the housing market. If people think values are going up, they want to buy now before their desired home costs more. When more people are selling and buying, the housing market improves and values increase. So even if you don’t think real estate is increasing in value, if your neighbors believe it is, their attitudes and actions can make that happen.
That would make them right then, wouldn’t it? Hmmmm, something to think about.
Seller financing is when the seller allows you to make payments directly to them, bypassing the bank and Fannie Mae. If the seller does not need all their cash immediately, they might be happy to let you make payments and collect the interest for themselves.
Here is how a typical seller-financed loan works:
1) Most sellers will carry the contract for five years. After that, they want to be cashed out. Thus, the loan is amortized for 30 years with a 5-year balloon payment. This gives you the lower payment a 30-year loan would have, but at the five-year mark (or sooner), you would refinance with a bank loan. This gives you plenty of time to get your credit and debt ratio in compliance with Fannie Mae underwriting.
2) Make sure there is no prepayment penalty so you can refinance sooner than five years, if you choose.
3) A typical interest rate for seller financing is 8% to 10%. Remember, the seller is taking a risk that the lender was not willing to accept, so you have to pay for that. This is also why you want to refinance out of seller financing as soon as you can, preferably after one year. On a short term loan, interest rate is not as significant as for a long term loan.
You should have a real estate attorney write up the contract. It should include the amount owed, the interest rate, the principal and interest payment, that it is a fixed rate, that there is no prepayment penalty, what day of the month the payment is due with a 15-day grace period, and what the late penalty is if you are late (typically 5% of the payment). It should also spell out the terms of the 30-year amortization and 5-year balloon payment. Do not sign the documents unless you completely understand all the verbiage.
You should also hire an appraiser to verify the value of the home and a home inspector so you know exactly what the condition of the home is. Do not bypass these important steps.
Seller financing is not for everyone, but it has worked very well for others. One home buyer who could not qualify for bank financing, due to a bankruptcy that was less than two years old, was able to work out seller financing at only 5%. That enabled them to get into a home of their own sooner, and they were very happy as a result.
Or, “Can I take a cash advance on my credit card to help with my down payment?”
The answer to both questions is no. Your down payment must be either your own money or gift money from family or grant money from an acceptable source. No part of your down payment can come from a loan, not even from your mom. No exceptions.
If a family member is providing cash toward your down payment, then they will need to sign a form letter stating it is a gift and no repayment is required. Usually, they also need to show the source of their gift money by providing a bank statement(s) or other document such as investment statement.
Why can’t you take a loan from your parents for a down payment? Because the lender thinks that if you get into financial trouble and have to make a choice between paying mom and dad or the mortgage bank, your family ties will be stronger and the bank will lose out. Therefore, it is an unacceptable risk to lending. The bank is not going to take “second position” behind your family.
Any other loan, such as a cash advance from a credit card, is also unacceptable. This would affect your debt ratio as well as put the bank at a higher risk for getting paid.
For a small down payment of only 3.5 percent of the purchase price, look at the FHA loan. FHA allows all of your down payment to be gift money from family.
If you are eligible for a VA loan, you may qualify for a zero down loan.
The no-down sub-prime loans of yesteryear are gone, and I think that’s a good thing. It takes time and discipline to save for a down payment and closing costs, and that’s not a bad thing either.
(FHFA was established by the White House after the mortgage meltdown. Their mission is to ensure a safe mortgage market by setting rules for government sponsored enterprises. Think Fannie Mae and Freddie Mac.)
There are two mortgage fees they said would increase in 2014:
1) The Guarantee Fee. This is a fee charged by Fannie Mae and Freddie Mac for bundling, servicing, and selling mortgage-backed securities to investors. More detail is here. This fee increase was going to be passed on to mortgage borrowers, home buyers.
2) Credit related fee increase. A fee for having a credit score below the top tier. In other words, a charge to offset the risk of lending to you if you don’t have “A” credit. Currently, top tier credit in the mortgage world is 740, but they have proposed raising that to 800.
After the announcement, the Mortgage Bankers Association sprung into action in protest. They are actively working with policy makers to prevent a pricing increase for home buyers that could hurt our fragile housing market.
Just because we have seen some recovery, it doesn’t mean the market is robust and can withstand a punch in the gut like a major fee increase. So the issue is being reviewed now. We’ll have to wait to see how it all plays out.
What is the Loan Limit in Your County?
In the meantime, some counties with higher median home prices than average have suffered a loan limit reduction. I blogged about this possibly happening earlier this year, as you might recall. In the highest-cost areas where the loan limit was $729,750, the limit has been reduced to $625,500. Here is the link to the look-up table for FHA loan limits by county.
You are invited to sign up to this blog to receive important information about mortgages and home buying in 2014. I blog once a week, usually on Tuesday, so you aren’t flooded with too much in your in-box.
As I wrote December 3rd, interest rates are trending upward, and that trend continues. Today, we’re seeing 4.625% to 4.75% for the conventional 30-year fixed rate. But in addition, fees are also increasing.
In the near future, I will dedicate a post to explaining the mortgage loan fee increase and what you need to do in order to pay the least possible in fees. For now, be forewarned that if you want to bring less cash to closing and get the lowest rate for the lowest monthly payment, the time to sign the contract and lock in your interest rate is now.
Remember, you cannot lock in your rate/fee without a purchase contract, because locks are tied to a specific property address.
You can have your real estate agent write the contract for you now, lock in your rate now, but write the closing date for the end of January when you have more time to pack and move. Waiting to choose could cost you financially.
Please feel free to pass on this information/blog link to folks who might be affected. You’ll be doing them a favor by helping them save significant money on their upcoming mortgage.
Will we reach the 4.75% that rates were at on September 18th? Will we go even higher, into the 5% range and beyond? One economist brave enough to forecast the future says yes. In fact, he expects mid-2014 to see 5.5%, at the least.
As we receive good news about the U.S. economy, rates continue to rise. Of course, the chart looks like a zigzag, because rates do not increase in a straight line upward. But looking at the overall trend, we do see an upward track.
All eyes will be on the Employment Situation Report to be released later this week. If you have a loan in progress that is not locked in yet, you are taking a big gamble, because the trend is not your friend at the moment.
How Locking In Your Rate Works
Locking in your rate secures a specific rate and protects you if rates go up. To lock in your rate, you must have a fully executed purchase contract, because a rate lock is tied to a specific address. If you are still house shopping, you cannot lock, unless your lender offers the rare “lock and shop” program.
Get It in Writing
When you ask your loan officer to lock in your rate, you must also ask for a written confirmation of the lock. An email confirmation is sufficient. Keep this confirmation! Too many home buyers have been burned when a lock officer failed to honor their rate lock request.
Verbal promises mean nothing in the land of mortgage loans. Only what is it writing stands. So make sure you receive confirmation of your rate lock, the expiration date, and any points (dollar amount) you’re paying. If you’re getting a no-point loan, the lock should state a zero fee.
If you have friends or colleagues who are interested in buying a house or refinancing, please feel free to refer them to this blog information.
This post is not a prediction of interest rates, only a commentary on the apparent trend. It is not advice to lock or float. You and only you are in charge of deciding what interest rate you want to accept and lock.
1) Interest rates are still very attractive at 4.375% to 4.5% for the 30-year fixed rate and 3.5% for the 5/1 ARM.
(The 5/1 ARM is fixed for the first five years, then adjusts every year thereafter. It is a make-sense choice for people who plan to keep the property for six years or less.)
2) The housing market has been improving for the past year, giving home owners more equity, and giving more sellers the ability to sell which gives buyers more inventory to choose from.
3) Buyer’s agents are free to home buyers. They are paid by the seller. Your buyer’s agent is required by law to get you the best price, best terms, and look out for your best interests in every aspect of the real estate purchase.
It is my opinion that making an offer between Thanksgiving and New Year’s Day is a good strategy for getting the best price. Typically, the market slows down during the holidays, so there is not as much competition. Sellers aren’t receiving offers or even lookers, so this is the time for you to pick up a good deal. Furthermore, the market tends to pick up in January when renters make New Year resolutions to become home owners.
Some years back, I bought a condominium for a great price in December. My agent told me later that the home owner was so angry when he saw my purchase offer that he threw the papers across the room. (Thankfully, I didn’t have to see it, because I had a buyer’s agent representing me.) But then his wife said, “Honey, let’s just make a counter-offer.”
The counter-offer was not bad. I countered again, per my agent’s suggestion, and I got a lovely home at an attractive price. I lived there for five years and made a nice profit when I sold.