Positive Real Estate Professionals

Yesterday I was talking to a home owner that was toying with refinancing his property and had some questions that he needed answers. It surprised me that he wanted to know the difference between Rate and Term Refinance versus Cash Out Refinance. The reason that this surprised me so much is that most people do not know this terminology unless they are in the business or currently in the process of doing a loan. In the case of this borrower, his was the latter.

So, basically, I broke Rate and Term down for the home owner in this simple statement; Rate and Term Refinance is typically accomplished when all that you are paying off is the existing loans that were used to purchase the home. In some cases lenders will also consider a Rate and Term Refinance when the second loan that is being paid off was acquired after the purchase and the money was used to improve the property. The latter clause is not a rule of thumb, so please check with your lender. Also, some lenders will allow up to $2000 in cash out or to pay off bills in this type of refinance. As for cash out, I am going to defer to PREP’s residential mortgage guru, Fred Chamberlin for his complete explanation of this product.

Now that you have the picture of both products, let me add this in for you. Typically, most lenders will offer a lower interest rate on a Rate and Term product. The difference will not be huge, but it could be an extra $25 to $50 in your packet each and every month, and that is huge in itself.

Established by President Abraham Lincoln on May 15, 1862, the United States Department of Agriculture (USDA), a non-cabinet level department until 1889, sought to improve the variety of seeds, plants, and animals available to the mostly agrarian society of that time. This may seem like an unlikely place for prospective homeowners to turn when looking for a home loan. The truth is that the USDA Rural Development Program has been helping to provide the means to obtain low cost housing, provide community facilities like schools, health clinics, and fire stations, extend modern services such as water, sewer, electricity, and telecommunications beginning with the passage of the Hatch Act in 1887 and the Smith-Lever Act in 1914. Due in large part to these two acts coupled with the widespread needs of rural Americans that arose during the Great Depression, the USDA took on the responsibility of assuring that food production continued, began offering loans to small landowners, and helped meet the educational needs of rural youths. Add to these early acts the numerous other acts which directly affected the USDA such as the Food Stamp Program piloted between 1961 and 1964, Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) in 1972, and the Safe Drinking Water Act in 1974 and the scope of the USDA can be viewed in its modern form. The main purpose of this article is to illuminate the two types of home loans that are available from the USDA.

Mission: "To increase economic opportunity and improve the quality of life for all rural Americans."

The USDA offers two very different types of home loans in conjunction with state, local, and tribal governments, private and nonprofit organizations, and member-owned cooperatives as part of its Rural Development program. These loans are known as the Direct Loan Program and the Loan Guarantee Program. I want to first look at the things these two programs have in common.

• The home to be purchased must be located in an eligible rural area as defined by USDA. Click HERE to see if a specific property address is eligible.
• Both loans are intended for low income households to obtain home ownership in rural areas.
• Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.
• Under the Section 502 program, housing must be modest in size, design, and cost.
  

As similar as these programs are, there are some distinct and important differences.

Direct Loan Program

Eligibility: Applicants for direct loans from Housing & Community Facilities Program (HCFP) must have very low or low incomes.   Very low income is defined as below 50 percent of the Area Median Income (AMI); low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI.  Click here to review area income limits for this program.  Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance, which are typically within 22 to 26 percent of an applicant’s income.  However, payment subsidy is available to applicants to enhance repayment ability.  Applicants must be unable to obtain credit elsewhere, yet have reasonable credit histories.

Terms: Loans are for up to 33 years (38 for those with incomes below 60 percent of AMI and who cannot afford 33-year terms). The term is 30 years for manufactured homes. The promissory note interest rate is set by HCFP based on the Government’s cost of money.  However, that interest rate is modified by payment assistance subsidy.

Approval: Rural Development officials should make a decision within 30 days of the Rural Development office’s receipt of the application.

Loan Guarantee Program

Eligibility: Applicants for loans may have an income of up to 115% of the median income for the area. Area income limits for this program are here.   Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance.  In addition, applicants must have reasonable credit histories.

Terms: Loans are for 30 years.  The promissory note interest rate is set by the lender. There is no required down payment. The lender must also determine repayment feasibility, using ratios of repayment (gross) income to PITI and to total family debt.

Approval: Rural Development officials have the authority to approve most Section 502 loan guarantee requests.

Most loan guarantees issued by the Housing & Community Facilities Programs are from 80-100% of the amount of the loan. The reasons investors might choose to work with the HCFP are many. Since loan guarantees issued by HCFP are backed by the full faith and credit of the U.S. Treasury, many lenders consider HCFP programs to be a relatively risk-free way to expand portfolios. These loans are great for helping low income households in rural areas attain ownership of modest homes while avoiding one of the most common roadblocks, the down payment.

Click to see a complete list of Rural Development State Offices including contact information.

One of the most important things that people have to keep in mind today is that we need to keep moving forward in today’s housing market. This is the only way that we are going to truly come out of this housing crisis. For the people that announce that there is no crisis in this country, they are wrong. However, with that said, not every area or market in the United States is effected the same way. Therefore, they might not have a crisis in their area or housing market. These pockets are great in respect to leading the rest of the country to get out of the current funk.

With all that stated, one of the first things that you have to learn is how to maintain a positive attitude in this housing market. Without a positive attitude, there is no way that we can keep moving forward. One of the biggest questions that I get concerns the very article that is linked in the beginning of this paragraph. I highly recommend reading it whether you have a positive attitude or not. I have to tell you that maintaining a positive attitude is not always an easy task, but it is one that I have embraced. This was one of the biggest components in my decision along with my business partner, Rich Dansereau, when we decided to create Positive Real Estate Professionals. Without this “find the silver lining” mentality, it really would not have made sense to start this site.

Another big question that I get is “How to start over after a foreclosure“? Unfortunately, this is information that a lot of people across this great country are needing. Once again, the article that is linked here is only one source of information on this subject. If you want to learn more on this topic, just click the link and read the entire article. If you cannot find all the information that you need, then please contact one of the many professionals that are associated with this site. They will be more than willing to help you find the information that you need. In a nutshell, you can start over after a foreclosure. You are not doomed to spend the rest of your life as a renter. Though the options for you are limited to start out with, they will expand as time moves forward. The biggest thing that you will need to learn is how to increase your credit scores.

For the people that are looking to buy a home, their biggest question is “How to obtain a mortgage in today’s housing market“? To that, I simply answer that you need to contact a competent loan officer that can help walk you through each and every step of the process. Choosing your loan officer is just as important as choosing your Realtor or home inspector. These are the people that are going to walk you through each and every detail of your transaction. Making a crucial error in judgment here can result in a painful transaction. This issue is another reason that we chose to create PREP.

All in all, as long as we keep moving forward in today’s housing market, we can overcome any crisis that we are in. All we have to do is keep a positive attitude and outlook.

With all the changes to guidelines in the lending industry that have taken place in the past couple of years it is important for both you and your Realtor to know what type of loan and how much of a loan you have been qualified for. Even if you don’t feel comfortable going to the top of your qualifies loan amount, it is important to know your ceiling. In the following article from Debbie Malone, this excellent Realtor gives her very solid advice drawn from her years of experience as one of the best Realtors in Virginia. I hope you find the article both informative and useful.

<Via Debbie Malone RE/MAX 1st Olympic:

When you work with a professional they listen to your needs and hopes; they talk to you in a way that you can understand even if it is something you know little about. In short the same qualities that many of us look for in friends are the very same qualities we look for in professionals. Do you have that level of comfort and understanding with the professionals in your life? In the following article, Danny Thornton explores the importance of a good working relationship with your real estate industry professionals.

Via Danny Thornton:

When I have talked to people over the last 6 to 8 months, it seems one of their biggest concerns is whether or not their loan officers are giving them the best loan for them. Too many times have I witness loan officers getting on a kick of selling just FHA loans and frankly ignoring USDA, VA, or even conventional loans. The problem with this is that they might not be getting you, the consumer, the best loan for your circumstances.
Let me give you an example of what I mean. A few months back I had a customer call me distraught. The lender that they had contacted previously had qualified them on a conventional loan and the customer had to bring almost $20,000 to the table. The down payment was 10%. After asking a few questions, I found out that the customer was a veteran. Upon realizing this, I immediately thought of the VA loan. In this case, he could get in the home at 100% financing, pay his closing cost, and still have money in the bank for a rainy day. With the conventional loan, he would have been tapped out in the bank.
After digging a little deeper, I realized that this mishap was not the fault of the loan officer though. When I went to their website, I found out that they were not licensed to sell VA or FHA loans. This is something that is very important to know going in when dealing with a mortgage company. Also, another thing to take into consideration is the fact that just because a lender is licensed FHA or VA, it does not mean that they also carry all the products that either of them has available.

When I came across this article by Fred Chamberlin I was stunned to say the least. This article illuminates a path for home ownership for lots of Americans. This means that what Fred discusses is important and different from traditional FHA, VA, and USDA programs because it can be used by investors. That’s right, investors! Do I have your attention now? Then read on…

Via Fred Chamberlin of Eugene Loan Guy:

Foreclosures, how to buy them and maybe most importantly, when. I have been discussing how to use the FHA 203k Streamline as a great way to buy your personal residence and be able to fix it at the same time. Effective today, we have another program to help purchase foreclosures (or REO – Real Estate Owned) properties that are owned by Fannie Mae. This new program is called HomePath. This is an unusual program because it allows not just personal residences, but also second homes and investment properties as part of the program.

So, what is so special about the HomePath program? Well, to start with, it is available up to 95% loan to value on a personal residence, including double wide manufactured home/land properties, with no mortgage insurance. SAY WHAT!!!! Not only that, it is available up to 90% loan to value for investment property and second homes, also with no mortgage insurance. Appraisals are not required. Only those REOs registered with the HomePath program are eligible for the program.

There are currently three homes listed on the website in Eugene, two in Springfield, three in Cottage Grove, three in Creswell, one in Junction City, and one in Veneta. Of those, one of the Springfield properties, two of the Cottage Grove properties, one of the Creswell properties, and the Junction City property show as being under contract. There are six currently listed in Salem, but three of those are under contract. There are 10 listed in Bend with none of them showing as under contract. To find out what properties are available in your area, go to www.homepath.com. There will be a HomePath renovation program available at a later date, but not currently.

This is a very specialized program, with limited properties. However, if you are an investor, where else can you buy a home at 90% loan to value and not pay mortgage insurance? For that matter, where can you buy a home at 90% loan to value as an investment property? As I stated before, I still believe that it is in your best interest to have your own Realtor® representing you in this process. Call me today to get pre-approved to purchase one of these homes. These deals will not last long as investors snap them up.

The following post by Danny Thornton explains some of the changes that have occurred in the mortgage industry. These changes are actually positive for both borrowers and lenders. Many people think that the tightening of lending guidelines serves only to hinder qualified buyers from obtaining a home loan. As you will see in this article nothing could be farther from the truth. These tightened guidelines mean that when a potential home buyer actually purchases a home, they are able to afford it and unless something catastrophic occurs, they will have the ability to remain in it for years.

Via Danny Thornton (Home America Mortgage, INC.):

One of the first things that I always hear when it comes to mortgages today is that it is not as easy to get one today as it was 3 years ago. Well, frankly, that is true. Today the lenders are being a little smarter with who they give their money to.

With that said, the issue of getting qualified for a mortgage is not what has gotten harder. What has gotten tough is lending money to people that either can not prove their income or prove that they can manage their finances. Let’s take a look at both issues for a minute.

A few years ago, you could basically call up a lender, state that you make XYZ for an income, and get a mortgage. In my book, this is not responsible lending. Responsible lending tells you that a potential customers needs to be able to pay back the money and to do so, we need to determine if that potential customer actually makes XYZ. This was a program that was being offered to people with credit scores in the 500s and probably never should have been.

That leads me into the second issue which was people that could not manage their credit. This might be one of the biggest issues and it still is an issue today. When buying a home, the lender needs to make sure that the borrower can actually pay back the mortgage. If they are currently showing late payments or collections, this should throw a red flag up to the lender. In this case, the lender then needs to determine if the borrower can pay back the amount in a timely manner to them.

Both of these issues that I have wrote about are issues that affect the lender in the long run. The biggest effect is brought on from the investor. First off, a lot of investors will not back “stated income” loans due to the facts mentioned about. The same goes for “credit risk” loans as well. Investors buy these pools of loans because they want to make money. The higher the risk, the higher the return, but the bigger chance of losing as well.

These are some things to consider when you go to borrow money from a lender in the future. It is not that we do not want to lend money at this time. It is the fact that we have to be picky with whom we lend to now.

I came across this article yesterday and thought it made some excellent points regarding how the Libor Index which directly affects Adjustable Rate Mortgages (ARMs) has been behaving. There is a lot of concern now for most people whose loans are scheduled to reset or adjust. The obvious concern is that when an ARM reaches its adjustment period it will automatically skyrocket making the home no longer affordable for the homeowner. In the following article there is some great information about why this may not necessarily be the case any longer.

Via Fred Chamberlin of Eugene Loan Guy

Did you get an adjustable rate mortgage two to three years ago? Are you in a panic because it is time for it to adjust? Maybe panic is not the right thing to be feeling right now. Maybe satisfaction that you did something good is the way to be feeling right now. Eugene and Springfield property values have dropped some, not as bad as other areas, but enough that refinancing is not always possible. But it probably is time to be thinking about what your refinancing options are. Consider these two scenarios:

1. You bought your home almost three years ago on a conventional 3/1 ARM at 6.5% interest. Most generally this ARM has a margin of 2.25% and is based on the 1 year LIBOR (London Interbank Offered Rate). Your loan is scheduled to adjust on April 1, 2009. What is going to happen? To figure this out, you need to look at what the index and the margin are together. The index is currently at 1.89% and when added to the margin that give your a total of 4.14% if it were adjusting in March. Since most lenders round up to the nearest .125% that would make the new rate 4.25% except the maximum adjustment up or down is only 2% so the new rate would be 4.5%. Saving your money every month over what you are paying currently.
2. You bought your home almost two years ago on a sub-prime 2/1/6 ARM at 7.5% interest. This loan has a 5.4% margin and is based on the 6 month LIBOR. I is a six month adjustable and has a maximum 1% up or down adjustment. (Please note: some sub-prime loans have a floor rate of the start rate and will not adjust below the start rate.) In this example, the index is 1.55% plus the 5.40% margin so the rate could go down to 6.95% rounded up to 7% or stay the same.

Just because you have an ARM is not necessarily a reason to panic. Determine what your options are. Fixed rates are excellent for stability, but ARMs are also good when rates go down. What you need to do is determine what your loan is scheduled to do and when it will do it. Make sure you know what makes sense for your situation. If you have difficulty reading the documents and need help determining what will be happening with your loan, give me a call. I am happy to look it over and make suggestions. If a refinance is right for you, I will let you know that. If it isn’t in your best interest, I will tell you that also.

With a resounding ring, the new year was ushered in by billions of people all over the world. For some, they were glad to get 2008 behind them. For others, they were glad to get 2009 started. For me, I fall in the second group. I am excited in what I see happening in the housing market here in American. Do I think that it is going to create a wealth of income for fly-by-night professionals as it did in the 90′s? No, not even close, but it will create a steady stream of income to the professionals that get into it for the right reasons.

At this point and time, it is a great time to buy or refinance. Rates are historically low, but if you are a person that likes to play the waiting game, this is truly not a market that you want to be in. It is not stable and the rates do not sit still. What a loan officer might quote you today might be gone tomorrow. It might change for the better and it might change for the worse. It is almost like playing Russian Roulette. Personally, I do not think that it is worth the wait.

If  were in the market to buy or refinance and I get approved, I am jumping in the market. That opportunity might not appear tomorrow or next week. We live in a time and age that we have to be in the now. That means, if you want to take some time to think about it, 24 hours is not on the table any more.

One for the things that readers know about me is I have always been a straight shooter and will continue to do that. I am always going to make it positive but I am not going to sugar coat the truth. If it was ugly, I would tell you it is ugly. Frankly, I can not see half of these things that people talk about. I hear people saying that it is harder to get a loan. Frankly, I cannot see that. If you mean that you can not just call up and tell the lender how much you make and how much is in the bank, then I guess you are right. Those loans are long gone and should have never been so loosely offered.

With that said, as long as you meet the criteria having a job, making money, and paying your bills, then you need to be taking to a competent loan officers. These are the only people that can tell you for sure if you qualify.

As always, if you have questions, do not shy away from asking. I will be brutally honest with you.

For those that are not familiar with the FHA Secure, please read Rich’s post below. In my opinion, this was a program that was brought in too late. I truly believe that if the program had been instituted when problems first started to surface, then maybe we could have gotten more people help.

This is a problem that seems to surface with most of HUD’s programs. Couple that with the lenders that are not approved to do FHA mortgages and that is what compounds the issue of not being able to help the people in need.