Road to Homeownership

FHA Program is Great for Buyers with Less-Than-Perfect Credit

2007-11-09T20:26:00.000-08:00

Today, the mortgage industry is in disarray with the Sub-Prime Meltdown but there are still many great loan programs for first time home buyers with less-than-perfect credit. FHA is here to the rescue! FHA offers great 30 year fixed and buydown programs which makes the thought of home ownership more than a pipedream. First of all, there are no credit score requirements and each borrower is evaluated on a case-by-case basis and you have every opportunity to present the merits of your qualifications to real human being not a machine. For example, if you had bad credit in college and you have worked hard to improve your credit and you have made on time payments on your obligations for the last year, you have a good shot of being approved. Also, if you have no credit history at all but you have non-traditional credit such as rent, phone, electric, phone, cell, etc and you have made on-time payments for a year on 3-4 accounts, you will probably get approved. Obviously, you have to meet income and other requirements, but lately I have spent countless hours assisting buyers in cleaning up their credit so that they can buy a home within the next 6 months-1 year. I have a credit consultant who works with my credit-challenged borrowers and he has been able to help them substantially improve their credit so they can get approved for a good loan program such as FHA. Bottomline, if you want a great 30 year fixed program with a low rate, then you have to do some work. Just help me help you and home ownership will become a reality.

Finally, there is a Bill called the Expanding American Homeownership Act of 2007 waiting to be passed which would revamp the current FHA platform which would allow FHA to raise current mortgage limits and offer zero down payment options. It is a great starting point to bring good news to first time home buyers who need a safe, fair and affordable FHA alternative to the exotic subprime market.

How to Find a Good Mortgage Lender

2007-02-10T12:27:00.000-08:00

The internet can be a blessing and a curse. Many buyers are now doing a ton of research online to get information on buying their first home which is great but I think they are overdoing a bit and missing the most important factor..a reputable lender. First of all, it takes many years of experience to understand and structure programs and if you do not meet one guideline, your loan is done..finished. My point is that many loan officers these days are promising great loans with unbelievable rates without doing their homework and the result is a time-bomb waiting to happen. These days the competition is fierce and they will tell you anything to get your business. For example, you apply for a special zero down bond loan program in your area which offers a grant and you are excited about the getting into a new home with a low payment and no money out of your pocket. Then, 2-3 weeks later you call the loan officer for status on your loan and he doesn't return your calls. Hmmmm....What is going on??? I will tell you. He found out you didn't meet one of the guidelines such as income requirement, the deal blows up, and he is hiding out in a bunker nowhere to be found. What about the low rate you locked into and the no closing cost promise? Kiss it goodbye. Now, you are scrambling for your life trying to find another loan officer and program days before closing. Don't get me wrong, there are a lot of good loan officers as well as bad ones, but you need to talk with somebody with experience in first time home buyer loans and who has your best interest at heart. I have had many people come to me right before closing after having a bad experience with a lender and I wish they would have not bought into "the too good to be true promise."

Secondly, do your research on the programs but don't apply to every online lender in the universe so you can't remember which ones you applied to and what programs they offered. Bookmark or save the best websites so when a loan officer calls you about your application, you have an idea why you contacted them.

Finally, you MUST ask for a Good Faith Estimate of the closing costs and get a "Total Cost Analysis" of the best 3-4 programs side by side so you can make the best decision on which program will work for you. Make sure you understand what the lender is actually charging you because they can low-ball standard charges such as title insurance to make it appear that their closing costs are lower. Go over every cost line by line and if you don't understand a cost then don't be afraid to ask about an item..it's your money. Another thing is don't get caught up in who has the lowest rate and closing costs in the world. You must look at the lender qualifications as well as the best program options based on your financial and personal goals. Many online lenders offer below market rates and costs but they may not deliver the loan you asked for and they may bait and switch before you close your loan. Believe me it happens more times than not and that is what gives mortgage brokers a bad name. In the end, trust your gut feeling..it is usually right..and you will get what you paid for and more.

Improving your credit score can save you from losing your home

2007-02-03T07:30:00.000-08:00

The housing market was hot 2-3 years ago and many first time home buyers with lower credit scores in the 580-599 range bought homes with 2 year higher interest rate arm loans. In the last year or so, these arm loans are adjusting to the full rate market rate in the 10-12% range and borrowers who could not refinance to a better program are not making their payments and many homes are going into foreclosure. As a result, lenders are tightening up their guidelines and today you may not get a zero down loan with a credit score below 600. Many loan officers did not do a good job of explaining the pitfalls of these programs a couple of years ago and now the homeowner is paying the consequences, but there is good news. You must get on the road to homeownership early in the process so you can improve your credit to qualify for an excellent first time home buyer program. I encourage people with less than perfect credit to run a mortgage credit report and seek a consultation from an experienced loan officer at least 6 months-1 year before buying a home. You may be only 20-30 points away from qualifying for a great loan which usually requires a 600 credit score. FHA doesn't even have a credit score requirement but if you have had credit problems in the past, you will need to have a very good payment history on at least 4-5 accounts in the last year. Let's take a look at an example which a borrower is purchasing a $200,000 home and they have 2 loan options based on a 599 credit score. The first option is a sub-prime 5 year adjustable rate mortage loan, 5% down payment, 9.50% rate and the second option is an FHA 30 year fixed program, 3% down payment, 6.00% rate. The payment on the sub-prime loan is $1,504 interest only and the payment on the fha loan is $1,199 which is a $300 month difference in payment and you will not be paying off any principal on the sub-prime loan because only interest payment is required. You could refinance this loan into a more traditional mortgage after 1 year as long as you make your mortgage payment on time and you pay off any collections and/or judgements. The problem with this scenario is the fact that most people who take this loan program have $5,000-$10,000 collections which they didn't have to pay off to qualfiy for the sub-prime loan and they don't make a dent to pay off these account during the next year and they can't refinance into a "good loan." Now, they are stuck and they fall behind on the high interest only mortgage payments and they are forced into foreclosure proceedings. Don't get a band-aid loan and take on more debt just to buy a home because you think you need to be a homeowner right this second. You could pay thousands of dollars more in interest and you may lose your home. So, please do your homework and contact a real professional early in the process and clean up your credit to qualify for a great loan program.

Create a budget before buying a home

2007-01-27T12:23:00.000-08:00

Many first time home buyers come to me with unrealistic expectations about the mortgage payment associated with a certain purchase price. For example, I had one person request a $700 payment for a $200,000 loan and I can work magic to get the payment down but Houdini couldn't get this done. I asked the buyer some more questions related to his finances and I was able to determine that he had too much debt and alas the reason for the super low payment request. I put my financial counseling cap on and worked out a solution which he was able to pay off a car with only a year left on it which created $500 per month cash flow as well as eliminating some expenses from his budget which gave us another $250 per month cash toward the mortgage payment. Now, he was able to afford $1,450 per month payment and I was able to customize a 30 year fixed zero down payment of $1,550 per moth which was still a little tight. I had one more rabbit to pull out of the hat. I explained to him that he could take less taxes out of his check because he will be getting some good tax benefits from mortgage interest and real estate tax deductions. He then said, "why would I give up my tax return which is one of the main reasons I want to buy a home?". I told him even if he doesn't get any more money back from Uncle Sam, he would still build wealth when his home goes up in value every year. For example, if his new home appreciates at 5% per year for 5 years, his home would be worth $255,000 or more..a $55,000 increase in his net worth. Remember, he will be putting zero down and paying no closing costs out his pocket. My point is that you must sit down, look at your income and expenses, and work out a budget for your new home and determine what cuts could be made and what could be the maximum payment you can afford. Then, you can find out which loan programs and payment options will fit your budget. Finally, be realistic about the price range of your first home and don't think you are going to get the Taj Mahal. You may have to buy a modest starter home at first but in a couple of years you can put down a large down payment and bump up to the home of your dreams.

Choosing the right first time home buyer program

2007-01-20T13:44:00.000-08:00

Choosing the right loan program can be a daunting task for a first time home buyer but it real boils down to 3 factors: 1. How long do you intend to live in the home? 2. What payment can you afford? 3. What are your short-tem and long-term goals? If you intend to live in the home a long time then you may opt for a 30 year fixed rate mortgage and you want to stay away from an adjustable loan or ARM. You may want an ARM if you intend to stay in the home a shorter time period and you want to match the term with the length of time you expect to stay in the home. For example, if you will stay in home 5 years, then you would do a 5/1 arm which the rate is fixed for 5 years. Rates on ARMs are usually lower and the shorter the term of the ARM the lower the rate. One of the biggest concerns for a first time buyer is their monthly payment and everybody wants to buy a big home and keep their payment very low but you may not be able to do this with a 3o year fixed loan. If you want to stay in the home a long time and want a more stable program, then you may want to take a look at the buydown loan or interest only loan to lower your payment. The interest only loan sometimes gets a bad rap because people feel they will lose money if they don't make payment toward principal every month. But you have to remember, most of the benefits of owning a home comes from the increase in value and you don't pay that much down on principal in the first 5-10 years of a mortgage anyway. For example, if you purchase a home for $200,000 and it appreciates at a rate of 5% per year, your home value will go up $10,000+ every year but you will only knock down your principal a couple of thousand per year. If you do a zero down payment and the seller pays closing costs, I can't believe anybody can argue with making $10,000 a year on a zero investment! Sometimes, I have clients who have a fixed payment they can afford in their head such as $1,000 per month and I may be only able to get their payment down to $1,100 on a great program but they still balk and say "the payment is too high". You have to be a little flexible and if a $100 is going to make or break you then you can take a little less out of your paycheck to absorb the higher payment. Remember, you will get greater tax benefits by owning a home and it probably won't hurt you at all to take a little less taxes out of your check . Finally, I customize loan programs based on each buyer's unique short-term and long-term goals. For example, I may have a couple which one is still in school and one is working but they want to stop burning their money on rent payments and get into a home now. Let's assume they have excellent credit, no down payment, and the one in school will have a good job a year from now. I may suggest a Power5 Option ARM which has a super low interest rate of 2.375% (APR 8.01%) to get them into the home and I would refinance them a year later into a more traditional fixed rate type of loan depending upon how long they may stay in home. Also, I may give them a no closing cost option so they would not have to pay closing costs again. You see, there are thousands of loan programs with thousands of closing costs and points scenarios and you need to consult a trusted mortgage advisor who will help you determine what are your best strategies to manage the biggest debt you will ever have in your life.

Home Opportunities Program Great if you are a Teacher, Fireman, Police Officer, or Healthcare worker such as Nurse

2007-01-06T14:08:00.000-08:00

If you are a teacher, fireman, police officer, or nurse you may want to check out the Home Opportunities first time home buyer program. You can have no credit history or credit score low as 600 and qualify for a great rate. Today's rate is 6.125% (APR 6.26%) with zero down payment. There are no income restrictions and the seller can pay 4% of the loan amount in closing costs. Also, you may be able use stated secondary income from a side job which is not reportable and will not be verified. For example, if you are a teacher and you moonlight as a tutor, you may be able to use this cash type of income to qualify for the program. Finally, I am offering $500 off closing costs and please ask me about the My Community Give-Back Program which $100 from every closed loan will go to the 503(c)(3) arm of your organization.

This first time home buyer loan program is available to public employees* which is defined as any of the following:

Teachers-a certified teacher or administrator at an accredited or state recognized private or public school.
Law Enforcement-Firefighters-employees of a law enforcement agency or fire department administered by an agency or subdivision of a state or local government. You can be a sworn law enforcement officer responsible for crime prevention and detection, law enforcement, criminal incarceration or a sworn member of a fire department involved in fire suppression or prevention, emergency medical response such as paramedic, hazardous materials response, management, or response to terrorism.
Certified Healthcare Workers-Employees of a certified, accredited health care facility, or a licensed health care worker who is a medical resident or fellow, a nurse, a nursing assistant, pharmacist, pharmacy technician, physician's assistant, medical technician, or therapist.

Please contact me at 847-516-5743 if you are unsure whether you qualify for the program.

*Definition of Public Employee applies to both public and private professions.

Rent vs Own

2006-12-30T21:55:00.000-08:00

If you are a renter then you should consider all the facts about owning a home before you snuggle down comfortably in your rental abode thinking you have it great. If things are so great then why do most renters have no serious money in the bank? The fact is you are throwing money into the furnace and I will tell you why. First of all, you don't get any tax breaks for renting so Uncle Sam gives you back squat. Secondly, your apartment is not your asset so you will not reap any benefit when the building goes up in value. Lastly, every cent you pay toward rent goes into your landlord's pocket. Also, most first time home buyers think if they are paying a low rent payment then they are better off renting instead of buying a home which is far from the truth. Check out the rent vs own video which explains the numbers in black and white why it is better to own your own home unless you live at home for free. I thought I could live at home forever until my dad said "get out". Today I thank him for kicking me out because I would have never have met my wife if I did not venture out on my own. So, unless you plan on living with your parents until you are old and gray then I would advise you check out the American Dream of owning your own home.

2-1 Buydown Mortgage Loan

2006-12-23T11:05:00.002-08:00

A couple of years ago, first time home buyers were able to purchase a new home with some great adjustable rate programs but rates have gone up on these type of loans and now they are searching for more stable loan programs which keep their monthly mortgage payment low. The 2-1 buydown 30 year fixed mortgage loan allows you to buy down your rate for the first couple of years which means you can afford a bigger home with a low payment. Let's take a look at an example. Let's say you want to purchase a $258,000 home with 3% down which would give you a $250,000 loan and we will use the current rate of 6.25% (6.29% APR) then your payment on traditional 30 year fixed program will be $1,539 principal and interest. But if you take the buydown loan program at 4.75% (4.87% APR) then your first year payment will be $1,304 which is $235 less than the traditonal 30 year fixed loan. The reason why the program is called 2-1 because your rate will adjust 1% per year for 2 years and then it will remain fixed for the remaining 28 years so your interest rate will be 5.75% in year 2 and finally it goes to 6.75% in the beginning of year 3 and remains fixed thereafter for the life of the loan. Now, there a couple of points worth mentioning here. You may say, I will have a 6.75% rate for years 3-30 which is higher than 6.25% rate which is true but it will take 6 years on the buydown program to equal the rate on the traditional loan (4.75%+5.75%+6.75%+6.75%+6.75%+6.75% divided by 6 years equals 6.25%) and most people usually refinance or move by that time since the average first time home buyer will live in their first home 5 years or less. Also, you can buy down the rate further by paying more points up front to get the rates lower (1 point is 1% of the loan amount). For example, you can do a 4.50%-5.50%-6.50% program with 2 points. Please visit 2-1 Buydown Mortgage for more details.

The icing on the cake for this program is the fact that the inventory of homes are higher now and sellers as well as builders are willing to pay for your buydown points as well as closing costs to make a deal right now. The mistake most first time home buyers make is they get the seller or builder to reduce their sales price let's say $5,000 which only lowers your monthly payment $30 per month based on 6.25% traditional loan rate. What you may want to do is don't ask for the price reduction and request that the seller or builder pay points and closing costs which would give you a much lower payment and less out of pocket costs. Another point worth mentioning is the fact if you do end up moving within 2 years, your average rate on the buydown loan will be 5.25% (5.42% APR) which is much lower than the current market rate. Also, you will save approximately $3,800 in interest and your remaining mortage balance will be lower because you will pay more toward your principal at a lower rate. Bottomline, if you are looking for a more conservative program which doesnt' have as much risk as an adjustable mortgage then the buydown program may work for you. Finally, if you know your income will be increasing over the next couple years but you want to keep your initial payments low then this loan is an ideal choice. I know this program may seem somewhat complicated but you need to contact an experienced mortgage professional to go over this program in great detail so you understand how it works and will it benefit you based on your specific financial goals and situation. Personally, I offer my clients an analysis report which spells out everything about the buydown loan. I believe you must give home buyers the best loan options available so they can make an intelligent decision about the biggest purchase they will make in their life.

Legislative Alert! Mortgage Insurance is Now Tax Deductible

2006-12-16T14:05:00.000-08:00

One of the top complaints from first time home buyers is that pmi or mortgage insurance is not tax deductible. Guess what? Legislation has just passed a new bill which allows a home buyer to deduct mortgage insurance on a mortgage loan after January 1st, 2007 and is available to taxpayers who have adjusted gross income of less than $110,000. How will you benefit? Up to this point, most first time home buyers have opted for piggyback or combination loans such as 80-20 and higher interest rate one loan programs to avoid mortgage insurance and to get the full tax deduction on mortgage interest since mortgage insurance wasn't tax deductible. Now, you must take a look at the lower interest rate loans available with mortgage insurance to determine if one of these programs will better than the no pmi loan options.

Let's take a look at an example. Let's say, you want to purchase a $200,000 home and you were eligible for the My Community 30 year fixed zero down loan program, your payment would be $1,231 based on a 6.25% rate (6.34% APR) plus mortgage insurance of $98 which equals $1,329 per month*. If you did the 80-20 loan your payment would be $1,011 based on 6.50% rate (6.56% APR) and $160,000 1st mortgage 30 year fixed loan plus $307 payment based on 8.50% (8.61% APR) and $40,000 2nd mortgage 15/30 loan which equals $1,318*. At first glance, it seems the 80-20 might be a better choice but remember you can usually get rid of pmi with a new appraisal without refinancing after a minimum of 2 years if you have 20% equity or value in home, then your payment will be $1,231 per month which is lower than $1,318 for the 80-20 loan program. If you plan on staying in the home 2 years or more, you will save about $87 per month or $1,044 per year. I would rather buy myself a new set of golf clubs or treat my wife Natasha and daughter Alana to a nice dinner every month than fork it over to the mortgage company.....wouldn't you?

*Payment does not include home insurance, taxes, and association dues (if applicable).

Buyers Market

2006-12-07T17:35:00.000-08:00

In the last several months, the inventory of homes for sale have risen and home buyers have a lot more properties to choose from but I must warn you, don't wait too long. This week the inventory of homes have leveled off and home prices are starting to stabilize so wait are you waiting for? Furthermore, interest rates have dropped in the last 6 months and the 30 year fixed currently sits at 5.625% (5.75% APR) and buydown programs are available at 4.50% (4.66% APR). Today, we are experiencing a buyer's market which home buyers are in the driver's seat and usually, you can get the seller to lower their price below list price and have them pay all the closing costs. There have been a ton of buyers who have headed to the sidelines this year waiting for prices of homes to fall further and if you don't buy a home soon you may miss the boat.

It is very difficult to pick a bottom on a stock price and buy it at the lowest price. Before you know it, the stock climbs quickly and you lost out on the gain and the same applies to buying a home. Let's just say you think home prices have bottomed out and now it is a good time to buy a home, but wait a minute, everybody else is thinking the same thing and buyers flood the market, seller's start raising their prices and stop paying buyer closing costs, and you pay more for a home and you need to bust the piggy bank to pay your own closing costs. I think it's gut check time. Rates are the lowest they have been in a year and home prices and inventories are stabilizing and if you are waiting for the price to drop a few more thousand and interest rates to drop another .125th, then you may only save $20-$30 per month on your mortgage payment if you are right. But if you are wrong, not only will you incur a higher mortgage payment but your negotiating power may slip away and you may have to scramble for thousands of dollars to pay closing costs. You make the call.

What Do You Mean You Have No Credit History?

2006-06-17T15:02:00.000-07:00

I would like to set the record straight what it means to have no credit history. When you run a credit report and "no credit history" whatsoever shows up and there is absolutely no bad credit such as collections, judgements, bankruptcies, foreclosures, repos, etc. then you have no credit. You can possibly qualify for a great FHA loan or zero down program if you have some non-traditional credit such as rent, phone, gas, electric, health club, car and health insurance accounts in your name and you have been making regular on-time payments. So don't make the mistake of thinking that you have no good credit means the same thing as having no credit history and most likely you will not qualify for any first time home buyer program with all bad credit on your credit report.

Is Pick a Payment Mortgage Loan Good Deal?

2006-05-20T17:46:00.000-07:00

Interest rates have been rising over the last year or so, especially for the adjustable rate mortgages which have escalated 1% or more. First time home buyers are being squeezed by higher rates and they are looking for programs with lower payment options. The Pick a Payment plan offers a riduculously low rate of 3.40% (APR 7.43%) with zero down payment and NO PMI but there is a catch. The fully indexed rate or what I like to call the "real rate" is based on an index plus margin which currently equals 7.30% and the difference of 3.90% is tacked on to your mortgage balance. For example, if you want to purchase a house for $200,000, your minimum payment would be $887 per month plus taxes and home insurance..Wow! But $330 per month of interest will be added to your mortgage if you make the minimum payment and your balance would be approximately $204,000 after the first year. Now, this may not be a bad scenario if your home goes up in value at least $10,000 which it should and you plan on refinancing within 1 to 2 years. Remember, you can always make the full interest payment due and avoid having your balance go up. Worst case scenario, you stay in the home 1-2 years and you will probably break even. This loan could be good for a couples where one of the two is still in school and their income will increase once they graduate in a year or two or commissioned sales reps whose income is unpredicatable and they need the flexibility of lower payment options at certain times of the year. Personally, I believe the Pick a Payment loan or any program is better than renting unless you live with your parents for free but sooner or later you will have to hit the road and make it on your own.