Monthly Archive for September, 2009

You've heard it here before--this product, sponsored by USDA Rural Development, allows borrowers to get 100% financing at a low fixed interest rate if the property is in designated rural areas--which aren't limited to the back of beyond. Property just outside city limits is often considered rural for the purposes of geting these loans. But you may have to hurry.
According to ForexHound, the number of home loans guaranteed by the USDA ballooned to nearly 120,000 in the first nine months of 2009, up from roughly 35,000 in all of 2007. But given the amount of development in outskirts all over the US, fewer areas are truly rural and once the population is sufficient they will be taken off the rolls.

Bank Saying No to USDA

One of the largest banks in America is discontuing rural housing mortgages, and it may not be the only one. With the possibility of these mortgages going away and the discontinuence of the first time home buyer credit in November, low-to-moderate income home buyers need to move very fast. if you haven't called your bank, do it now. Get approved, not just prequalified--you want to be ready to pull the trigger as soon as you find a house.

No, this isn't a rerun of a previous post. Fannie Mae did toughen its guidelines ten weeks ago. And it's doing so again.

Here are the latest changes:

• Lowered debt-to-income ratios to 45% maximum
  
• Minimum credit score increased to 620
• More loan-level pricing adjustments when MI is involved

Loan level pricing adjustments (LLPAs) can be found in Fannie Mae's matrix (aka the Chart of Death) and can be unbelievably onerous.

Loan-level pricing adjustments are surcharges assessed in addition to your regular loan fees--the lender doesn't keep them; they go to Fannie Mae (and Freddie Mac has its own version of this as well). And they are very difficult to escape--if your credit score is anything less than excellent, you pay. If your loan-to-value isn't 80% or lower (in some cases if it's higher than 60%!) you pay. f you're doing a cash-out refinance, you pay. If you finance a condo or manufactured home, you pay. If you look at Fannie Mae's examples at the end of this chart you can see very realistic scenarios in which borrowers are clobbered for nearly four points in additional fees for having a credit score of 680 (which used to be considered respectable if not stellar) and getting a cash-out refinance of 85%. On a $300,000 loan, that comes to $11,625 in extra fees!

This latest increase is the ninth.

What can those with bad or just okay credit do to avoid LLPAs? Well, there is FHA--you can get cash-out to 85% with NO surcharges. If buying, even if you have a decent-sized down payment, say ten percent, it may be advantageous to you to pay the mortgage insurance premium (MIP) instead of Fannie Mae's surcharges. And even bad credit or sub-prime lenders may offer a better deal than Fannie and Freddie--the days of assuming that conforming financing is the cheapest are over.

Okay, you have been estranged from your spouse for several years. You'd like to buy your first house and of course you want the $8,000 first time home buyer tax credit. You file your taxes as a single person--in fact, you file as a Head of Household because you are for all practical purposes a single parent. How does the credit work for you?

Unfortunately, it may not work at all. If your almost-ex has owned a home in the last three years, you are out of luck. Because you are still legally married, if your spouse is ineligible for the credit then you are also. According to the IRS, "Section 36(c)(1) requires that the taxpayer and the taxpayer's spouse not have an ownership interest in a principal residence within the three years prior to the date of purchase. While individuals do not have to be married to get the credit, marriage (and legal separation) imputes ownership of a previous home upon the other spouse. The taxpayer may not take the credit even if filed on a separate return."

If your kicked-to-the-curb husband or wife IS eligible for the credit, you get to take half of your maximum, that is, up to $4,000--just as though you were married and filing separately.

Other Restrictions on the First Time Home Buyer Credit

Keep in mind that the three-year rule is just one of the criteria that determine your eligibility for the credit.

* You don't qualify if you buy your house from a close blood relative.

* You don't qualify if the property is not your primary residence. If you have to move before you have owned the home for at least three years, for example if your job or other circumstances force you to stop using the property as your main residence, the entire $8,000 must be returned to the IRS.

* You don't qualify if your modified adjusted gross income (MAGI) exceeds $95,000, and your credit gets phased out once your MAGI hits $75,000.

* You don't qualify if you are a non-resident alien.

So as long as you are separated and not divorced, the biggest credit that you can possibly take is $4,000, and that's only if the impending-ex hasn't owned a main home in the last three years. With up to $8,000 at stake, now might be the right time to finalize that divorce.

You are a smart shopper. Whether it's for a bad credit mortgage, an FHA loan, or a debt consolidation home equity loan, you know what to do--get online or on the phone, touch base with several lenders, and get your disclosures quickly. Once you have decided which lender you like best, it's time to apply for your mortgage. But what about that rate quote? Is it guaranteed? What are your rights when it comes to mortgage interest rate quotes?

Recent mandated changes to the Good Faith Estimate (GFE) disclosure make it easier to discern what your mortgage interest rate is and what the costs of getting that rate are. Now, you can see at a glance if your rate is locked or not--the disclosure should tell you right at the top how long the quoted rate is guaranteed. If you have not locked your rate there should be no date on the form. Interest rates are driven by financial markets and move almost like stock prices--often changing several times a day!

Once you have locked your interest rate, you should get another GFE showing what your interest rate is and how long it is guaranteed. The new GFE should also reflect any changes in the pricing of your mortgage. Recent mortgage reforms force the lender to give an accurate estimate--no baiting and switching--and differences exceeding tolerances defined by law between the last disclosure that you receive and the actual costs become the lender's responsibility. When it comes to locking, though, you still don't have an absolute guarantee. Remember:

* Your loan is not locked until you are explicitly told it is and you get it in writing. Do not assume that your rate is locked just because you called someone and left a message to lock in your rate.

* Once you lock, the clock starts. Locks can range from 7 days to six months or more, with longer locks being more expensive. If you don't close on time, or "blow the lock," you could end up with a higher rate or having to pay a fee to extend your lock. So make sure that you do your part and quickly provide everything the lender needs to close your loan.

* Sometimes you might blow a lock and it's not your fault--the seller took too long to return an addendum, the real estate agent neglected to order tests or inspections, or the lender sat on your file too long. Don't hesitate to ask whoever caused the delay to foot the bill for an extension.

* Not everyone chooses to lock their rates. If your closing is a while out, perhaps if you are buying a house under construction or the seller wants a long escrow, it may be impracticable and expensive to lock your rate. You save the fees on a rate lock (which can range from an eighth of a point to one point or even more) if you elect to float your rate. In addition, if rates drop, you benefit by not being locked in. That said, if a higher rate would jeopardize your loan approval you probably want to play it safe by locking.

When should you lock your rate? In most cases, if the rate is acceptable to you you probably want to lock it in and then get your documentation in on time to close.

On January 1, 2010, would-be borrowers will get a rude awakening from FHA. The agency's streamline refinance will no longer be the easy transaction it is today. Today, the biggest advantage of FHA streamline refinances is that they don't require an appraisal or credit qualifying. So even if your home's value has tanked and you have bad credit, you have been able to refinance easily into a better FHA loan. That opportunity is about to go away.

Until recently, FHA's objective always was to help its homeowners lower payments any time. Because FHA insured the mortgage it didn't care if your credit imploded or if your home's neighborhood was blighted with foreclosures and fraternity houses. By helping homeowners to lower their monthly mortgage payments, the FHA was also lowering its overall credit risk.

That's about to change.

Starting January 1st of next year, FHA will start to turn down streamline refinance applications on the basis of employment, income, assets, and appraised value. You can be sure a lot of today's FHA borrowers will be wishing they acted sooner. So here's the deal: If you've got an FHA mortgage--just for fits and giggles--check available streamline refinance rates against what you're currently paying. If you can save money, pull the trigger on a refi ASAP--those with bad credit may not get the opportunity again soon.

According to an article in the LA Times, mortgage problems are becoming credit problems. While refinancing under making Home Affordable programs won't hurt your credit and may even help it a little, the same can;t be said for short sales. Many holders of under water property assume that a short sale won't harm their credit, ...

Last year, FHA implemented a policy of risk-based mortgage insurance premium (MIP) pricing, which made those with bad credit scores pay more for insurance, and allowed those with good credit to pay less. That idea went over like a lead balloon with lawmakers and activists alike. And so on October1, 2008, a couple of months ...