Can Home Buyers Still Get A Mortgage?

The sub-prime mortgage debacle has had a devastating ripple effect throughout the entire financial services industry. The lending environment has gotten very tight. Lenders sometimes look three or four times – adding more and more conditions, requesting more and more documentation – before agreeing to make a loan. And while all of that is true, that does not mean that there are no mortgages to be found.

As a homebuyer, there are four major hurdles that you must overcome to successfully obtain a mortgage. 

1) Your FICO® scores  

Before looking at a lot of homes, you will want to meet with a mortgage broker or lender and have him take you through a pre-approval process. After all, there isn’t much sense in looking at properties that you may not be able to afford.

Although you are entitled to a free report from each bureau once/year, the free report does not provide you with your FICO® scores. You will need to pay for that information. A summary, generic or composite score will give you a general idea, but is not what the lenders require. You must have the individual score from each bureau.

The term “FICO®” is derived from the name of the company that originated the credit scoring system – the Fair Isaac Corporation. Begun in 1958 as a way to provide banks with a guideline to creditworthiness, today it has become the primary indicator that lenders use.

Depending on the credit bureau, the maximum score possible is 850. If your FICO® score is above 700, you are generally considered to be a good risk. With just a bit of knowledge and discipline, there are strategies you can use to improve your scores dramatically.

2) Your Income 

With so many job lay-offs, business closings and foreclosures rising as a result, lenders now look very carefully your income. You will need to fully document any income. And the lender will want assurances that your job will not disappear tomorrow. If you are self-employed and take lots of tax write-offs – or if you take a large portion of your income in cash and don’t report it  – you will only be able to qualify for a loan based on the amount of income shown on the bottom line of your tax returns. “Stated income” loans have simply evaporated.

3) Your Down Payment

As with everything else in the mortgage process, down payment requirements have also tightened up. The days of no money down are gone. FHA provides the best program requiring only a 3.5% down payment. 

You may not always have the option of FHA financing available to you depending on the type of property and the condition of the property you’re purchasing. So, if you apply for a conventional loan rather than an FHA loan, you may be able to find 5% down programs – but typically you will need at least 10% down to purchase a primary residence. 

If you put less than 20% down, the lender will require you to buy mortgage insurance. Mortgage insurance does not insure you – it insures the lender in the event that you default on your loan.

Besides your down payment, you will need additional funds to cover closing costs. Closing costs include a home inspection, title insurance, termite inspection, transfer stamps, loan application fee etc… All of the lender’s fees are estimated on the Truth-In-Lending Statement that you receive at the time you make your loan application. 

4) The Appraisal 

Once you, the borrower, have passed the lender’s litmus test for paying back the loan, you have one more hurdle to cross. The property itself must also pass muster. In the event that you quit making your payments and the lender must take the property back, they need to be assured that the property is worth at least what you are paying for it.  

With the rise in foreclosures, appraisals have gotten to be a very dicey hurdle to cross. And to complicate matters, the federal government now requires some lenders to outsource their appraisals to a third party vendor. The object is to remove any undue influence on the appraiser.

Clearing these hurdles can be confusing, frustrating and time-consuming. However, successfully crossed, you will be on your way to purchasing your home. 

For a free report “How You Can Improve Your FICO Scores,” go to www.mnack.com now.

First-Time Homebuyer Incentives

If you are a first-time buyer waiting for the ideal time to jump into the market, wait no more. Although the recession isn’t over with yet, there are signs that it is bottoming out. The lowest prices in nearly a decade combined with the lowest interest rates in over 50 years create a once-in-a-lifetime phenomenon – and the best time to purchase a home in 75 years!

And if that isn’t reason enough to jump into the market, there are some terrific programs that the government has made available to first-time buyers in order to stimulate the economy. Once the economy rebounds, some of these incentives will go away.

The First-Time Homebuyer $8,000 Tax Credit: 

A tax credit for first-time homebuyers was included in the Housing And Economic Recovery Act of 2008 and expanded in 2009. In addition to increasing the amount of the credit from $7500 to $8,000, it also does not need to be repaid. Here are the rules:

• You must be a first-time homebuyer (defined as not having owned a principal residence within 3 years prior to the date of purchase).
• The home must be purchased between April 8, 2008 and before Dec 1, 2009.
• The credit is 10% of the purchase price up to a maximum of $8,000.
• To receive the full credit, your adjusted gross income must be $75,000 or less if you file singly or $150,000 for a married couple filing jointly. The credit is phased out for AGI’s between $75,000 to $95,000 (filing singly) or between $150,000 to $170,000 (filing jointly).
• If your tax liability is less than the credit, you will receive a refund for the difference!
• You must live in the property as your primary residence for 36 months or you will be required to repay the credit.
• You must purchase the home from an unrelated third party.

FHA Loans:

Although FHA loans are not restricted to first-time buyers, their low down payment requirement and easier underwriting standards make them ideal for most first-time homebuyers – particularly in today’s stringent lending environment. And the interest rates are very competitive. FHA does not make the loan; they insure the lender against default. Therefore, many lenders make it easier for you to qualify.

• You only need put 3.5% of the purchase price as a down payment – and the money can come from a family member.
• It is easier to qualify for the loan. You may still be able to qualify for a loan, even if you have had credit problems or a bankruptcy.
• Interest rates are competitive with conventional mortgages. (However, you should compare interest rates from different FHA-approved lenders to make sure you’re getting a good deal.)
• A buyer with credit problems can take advantage of much lower interest rates than a traditional sub-prime loan.
• You will be required to pay for mortgage insurance which is charged as an upfront premium of 1.5% – 1.75% of the loan amount and then as a monthly fee included in your monthly mortgage payment.
• Some allowed closing costs or credits can be added to the loan amount.
• You must occupy the property as your primary residence – however, there is no time restriction as with the Tax Credit.
• Approved condos and 1-4 unit properties qualify.
• The condition of the property must meet FHA guidelines.
• FHA loan limits apply. These will vary from region to region but have been increased recently to make the loans more widely practical.

FHA 203(k) Loans:

For properties that need some fix up and repair, a rehab program provided through FHA is also available. It is called an FHA 203(k) loan. It provides all the benefits of a standard FHA loan while also providing acquisition and rehab costs. 

Typically, if a homebuyer wants to purchase a home in need of repair, they have to first obtain financing to acquire the property and then additional interim financing to do the rehab – which is then paid off by securing a final permanent loan. The advantage of the 203(k) loan is that the homebuyer need only apply for one loan. 

• The property must be an FHA approved condo development or a 1-4 unit property.
• You must occupy one of the units as your primary residence. These loans are not available to investors or rehabbers.
• You only need a down payment of 3.5% of the final loan amount. For example, if your purchase price is $100,000 and your rehab costs are $50,000, you will need a down payment equal to 3.5% of $150,000 – or $5,250. Don’t forget, this money can come from an immediate family member! (FHA loan limits apply.)  

Eligible Improvements

Even though the program is designed to assure that the property meets health and safety standards, there is a great deal of flexibility allowed. The homebuyer can use the program to paint, replace carpeting or appliances and even make a room addition or add a deck! However, luxury items are not typically allowed.  

The 203(k) program is not new but agents and lenders have not routinely used it because of the complicated process. That situation no longer applies because of reforms FHA as instituted to streamline the process. It is now possible to close the loan in less than 60 days.  

There are additional fees involved with this program – many of which can be rolled back into the loan. For a buyer looking to take advantage of bargains available in the foreclosure market, this loan can be ideal! 

Do your homework and I know you will agree: there has rarely been a better time to own your own home. If you – or someone you know – is ready to jump in, give me a call. I stand ready to assist you. 

For a free report “Rent Or Buy?” that includes a rent vs. buy calculator, go to my website now at www.mnack.com

Must Sell? 5 Things To Do NOW!

If you have been trying to sell your property, no one need tell you what it means when the media says, “This is a buyer’s market”. A buyer’s market is to real estate as a bear market is to stocks. Even when prices are so low that it just makes sense to buy, there are no buyers to be found!

Nonetheless, there are legitimate buyers that must move, that have excellent credit, plenty of money in savings or are just shrewd enough to take advantage of current market conditions to get a great property at a great price. So what must a seller do to find these buyers?

1) Tic-Tac-Toe or “Thermonuclear War”
I am going to say something now that may seem a bit bizarre for a real estate agent. There are some games that you can only win by not playing in the first place. As a seller, do not enter this market lightly or frivolously. This is a market you enter only if you MUST. Being bludgeoned by buyers making low ball offers is not fun nor is it entertaining. If you are not prepared to accept the beating, do not play the game. Stay out of the market!

2) Price is King
What you owe on the home, what you feel you must get, what you think is FAIR – none of these factors come into play in the mind of the buyer. If you must sell your home in this market, the #1 determining factor is the price. “Fair market value” is defined as what a ready, willing and able buyer is prepared to pay for your home today. In a market where prices are falling, this means you must actually price your property BELOW recent sales – that is, BELOW ascertainable “fair market value”. Reducing the price later as prices fall will not get your property sold because you are STILL priced above market!

3) When In Doubt, Price It Even Lower!
This is not a market to “speculate”. Of course you want to get as much as you can for the property. No one wants to feel as if they have left money on the table. It is counter-intuitive, but the BEST way to get the most money for your property is to ask LESS, not more! The reason is that if you have priced the property too low, buyers will recognize that and bid the price up. Even in THIS market!
 
4) You Have A Narrow Window To Maximize Your Dollars
Your best buyers are already in the market, have educated themselves to the marketplace and know the inventory. They are just waiting for the right deal to appear. This is how the maxim, “Your first offer is often your best offer” came about. You have one chance to snag your best buyers – and this is by aggressively pricing your property right up front. As a seller, time is NOT your friend. Even if you have time, the longer you languish on the market, the more it ends up costing you.

5) You Have One Chance To Make A Good Impression
Notice, this is the LAST item on the list. All things being equal – meaning if a buyer is looking at two similarly priced properties – naturally they will prefer the one that is in the best condition. Can you squeeze a few more dollars out of a buyer for a well-maintained property that shows well? Without question, buyers are willing to pay a premium for a property in tip-top condition. But buyers first look at the over-all marketplace, determine a range– and then buy accordingly.

So, do not expect to “get your money back” on your improvements. Buyers will not pay you what it cost you to make the improvement. DO clean up to make your home neat, tidy and neutral – maybe even a fresh coat of paint or new carpeting (but ONLY if the carpeting is really, really shot and not salvageable.) DO NOT spend money on expensive improvements – new appliances, central air, etc… You will not get your money back. 

If you are still contemplating selling your property, even in this market, then download my FREE report now, “Make A Good First Impression” – a checklist of free and easy things you can do to prepare your property to go on the market.

 

 

 

 

 

 

 

 

 

The Stimulus Package – Will It Work?

I was just talking to a client. They are on the fence about whether or not to put their property on the market. I advised her: you either hunker down for the long haul and wait OR you move ASAP. I hate to add to the negative climate, but I am alarmed at how much values have dropped since Sept!  And no one seems to feel that it’s going to turn around any time soon. 

 

I was at a function last week and the speaker was the recently retired (at age 46!) head of Goldman Sachs real estate investing. He’s very pleased with what the new administration is doing with the stimulus. He said that Geithner is a very smart guy and knows what he’s doing – even though they’re going to have to feel their way through some of this. He also said that the deficit is a necessary evil to get things moving again. But he didn’t think that things were going to pick up until 1/2 way through 2010 at the earliest. In other words – we’ve got another 18 months of this!

 

Stuart Rothenberg

Retired Goldman Sachs partner
and former head of the firm’s Real Estate Principal Investment Area

The chicken or the egg?

On the bright side, though, there is a lot of pent up demand. Once people feel confident that they’ll have a job next month, things can turn around quickly. I can probably name 1/2 dozen people right now that would LIKE to move, but are hunkering down waiting for a turn around.  It becomes a chicken and the egg story. And it’s not so much a matter of people not having money – though that’s certainly true for many folks. The people I’m dealing with, anyway, HAVE money. They’re just not spending it. It’s a lack of confidence. They are in survival mode – not spending anything they don’t have to. And it just becomes an ever-growing spiral. They don’t spend money and businesses continue to fail.

Time for the new guys to step up:

As Stuart explained it, the established players are too spooked to make any big moves. They have their own “legacy” portfolios to deal with. Again – the good news there is that it clears the way for new players to enter the field.  And that’s what will happen. Incidentally, that is how Goldman Sachs got into real estate investing. They bought up assets from the RTC back in ‘91 because the established players were too bogged down in their own bad portfolios to act. 

“Show me the money”

I’m not seeing a lot of optimism or confidence with the new budget and the stimulus package. People are definitely in “show me the money” mode. Though nobody wants to see Obama fail – Democrat or Republican – I just think they’re feeling like it’s too big and too complicated. No one can really get their head around it to feel confident that Obama is doing the right things. Heck, I’m not even sure HE’S confident – though he talks a good game. But even HE says they’re going to have to feel their way through this thing.

The Foreclosure Iceberg – vs. The Titanic Banks:

And, personally, I think we’re just starting to see the tip of the foreclosure iceberg now. Someplace I read said we haven’t even seen 20% of the foreclosures come to market yet. This stuff with the loan modifications, etc, is much needed and will help alleviate some of it – no doubt. But we’re already pretty well into this thing – real estate values have been declining since 2006 – and it’s just too late for a lots of folks. In the meantime, the banks are overwhelmed with the number of foreclosures and it is taking ages for them to process what they have already – not to mention what’s coming down the pipeline. They literally have high school kids (like the ones that man the counters at McDonald’s) handling these short sales. And you wonder why there is such a debacle!! You’d think with PhD’s out on the street looking for jobs, they could change that. Anyways… I hate all banks! Unfortunately, whaddya gonna do? Can’t live with ‘em – can’t live without ‘em.

6 Reasons Why You Will Love Living In Lincoln Square – Ravenswood

In 1977, I was a young bride and a young mother, we moved to East Ravenswood because of the amount of space we could find for the money. Little did I know that 32 years later, Ravenswood – now morphed into Lincoln Square – would still be my home! What are the things that have kept me here all these years? Compare your notes with mine and see if you agree:

1) I love Lincoln Square – Ravenswood because of it’s easy access to the Brown Line:
It took me years to get over calling it The Ravenswood Line. The Brown Line arm of the el system snakes through the neighborhood making access to downtown easy and convenient.

2) I love Lincoln Square – Ravenswood because I can walk to anything:
Welles Park, the Sulzer library (the first regional library in the city that replaced the Hild library – now the home of the Old Town School of Folk Music), The Davis Theatre and within the last 5 years the revitalization of Lincoln Ave. as the incubator of fabulous food – there is little reason to ever leave!

3) I love Lincoln Square – Ravenswood because the merchants know you:
This one might be my favorite. Just like living in an small town, after 3 or 4 visits, most merchants recognize you, call you by name and give you that extra service reserved for “regulars”

4) I love Lincoln Square – Ravenswood because of all the community activities at little or no cost:
From the “greening of Ravenswood” event in the Spring, the Ravenswood Art Walk, the Old Town School of Folk Music “Folk and Roots Festival”, the Ravenswood 5k Run – the list goes on – there are so many opportunities to meet your neighbors and play with them for next to nothing.

5) I love Lincoln Square – Ravenswood because of all the fantastic housing at still affordable prices:
I realize that this is a relative thing. However, we enjoy the amenities of Lincoln Park at 1/3 the price without the congestion. We can still park our cars in front of our homes. And, unlike Lincoln Park, we know our neighbors. We feel safe raising our kids and coming home late from work.

6) I love Lincoln Square – Ravenswood because of the fantastic schools:
There are so many excellent private and public school options – and at affordable prices: Pilgrim, North Park, Waters, Ravenswood, Bell, St. Ben’s, Queen of Angels. Parents are involved and children receive lots of individual attention for the best learning environment.

I know you will agree with me: Lincoln Square is a neighborhood where we can “still park the car, walk to the corner bistro, raise the kids and even send them to Harvard.”