The annual premium increase was originally scheduled to go into effect September 7th, but was delayed to afford lenders more time to adapt their systems.

To put this premium increase into perspective, a borrower purchasing a $200,000 home with the minimum required 3.5% down payment, would see a monthly payment that is $59.55 higher if their case number is assigned after October 4th. Over ten years this difference represents a total increased cost of $7,146 to the borrower. In addition to increasing overall borrowing costs, the hike has the potential to disqualify some buyers at the margin as this increase may push their debt ratios above the maximum allowable limits.

Ironically, some borrowers may benefit from this new structure if they plan to be in their home three years or less as the up-front mortgage insurance premium charged by FHA will be reduced from 2.25% to 1%. If they pay this premium in cash at closing, they would stand to gain a net financial benefit from the change. It is imperative that borrowers consult their mortgage planning professional in advance of their purchase in order to evaluate the cost or benefit of the new premium structure based upon their home financing plans.

While the proposal is a positive sign because it will likely shore up FHA’s capital reserves, it will also make it more difficult for some buyers with higher debt ratios to qualify for FHA loans. As an example, on a $200,000 purchase with the minimum required 3.5% down payment for an FHA loan, a principal and interest payment would amount to $995.01. The current monthly mortgage insurance would add $88.46 per month to that payment in addition to the borrower’s property tax and insurance escrows. With the proposed changes, the monthly mortgage insurance premium would increase to $144.75. To be fair, most borrowers also finance the up-front mortgage insurance premium, so the decrease from 2.25% to 1.25% would represent a savings of $1,929 plus any interest accrued over the life of the loan.

The sooner the better might be best if you are thinking about buying a home in the near future using an FHA loan.

Most buyers weigh the aesthetics of a home far more heavily than other factors which are just as important.  Considerations such as repairs and maintenance, schools, taxes, neighborhood, and commute will not only affect the value of your property over the long term, but will also affect how livable that home is. Instead, home buyers pay far more attention to paint colors and whether the home has hardwood floors and granite counter tops. So, what are some of the “other” factors a buyer should consider?

First, consider the neighborhood. Does it offer the amenities you are looking for? If you have kids, are there other school-age children in the area? Are you near a major traffic artery that could be dangerous for your children and generate “noise pollution” for you? How difficult is your commute? Having a wonderful home, but having to travel an hour in traffic each way, means you have less time to enjoy it. Furthermore, your transportation costs go up. Over the course of a month, that equates to 40 hours you will spend in your car and roughly $250 in gas, and we haven’t even considered additional maintenance costs. Your choice of neighborhood is just as important as the home you choose because your home’s value will rise and fall with the neighborhood.

Buying an older home can bring the benefits of a more affordable price and perhaps some character and distinction not found in today’s newer homes, but is not without its costs. When buying an older home, you should expect to budget for home repairs. Roofs don’t last forever and neither does the air conditioner system. Houston’s humidity creates a classic environment for mold to grow in the smallest crack where water has penetrated. Whether you have had a home inspection or not, there will be items your inspector misses and these are usually not inexpensive repairs. HVAC units can easily cost $5,000 – $10,000 and a new roof can easily run $10,000 or more. Mold remediation…well, let’s just not go there.

When buying a home, you should also consider maintenance costs; the larger the home and the more amenities, the higher those costs. Pools are notoriously costly to repair and maintain, and a large yard can become more of a garden headache than a source of relaxation if you don’t have a green thumb or a deep pocket to pay for weekly maintenance. Inside the home you should remember that a 4,000 square foot house means double the cost of heating, cooling, re-carpeting, and window replacement of a 2,000 square foot house…you get the idea.

Schools are a major driver of home value as buyer demand will always exist for a good school district. You should do research on schools, even if you don’t have school-age children, because it will affect your investment.

Taxes should also be a consideration. Tax rates can vary wildly in the Houston metro area, from a low of perhaps 2% of your home’s value per year to 4%. This is particularly important if you are buying new construction. Your home’s taxable value may be artificially low because the appraisal district still has your home listed as a vacant lot. Next year, when the home is re-assessed, you will experience a much higher tax bill. Even if your mortgage lender established an escrow account for your taxes and insurance, you may have to come up with a big chunk of change to cover any shortage when tax bills are due.

Your goal for your home should be to satisfy as many of your lifestyle needs as possible. You will be hard pressed to find the one that allows you to check everything off the list, but nailing down as many as possible will help insure your home is both a good investment and provides many years of happiness to you and your family.

The legislation, sponsored by Sen. Michael Bennet (D-CO), extends the life of the program by changing the fee structure of the program to make it self-funding without any incremental costs to taxpayers. This allows the USDA Rural Housing Service to charge an up-front fee of 3.5% (up from 2%), and allows an annual fee of up to .5% on the balance of the loan. Some low income borrowers could see these fees waived. These changes mirror those implemented on FHA loans earlier this year. FHA was faced not with funding issues, but with a capital ration that was dangerously low due to mortgage defaults.

The USDA Rural Housing program, also known as the Section 502 loan program, is available to applicants in non-metro areas of Montgomery, Brazoria, Fort Bend, Liberty, San Jacinto, Chambers, and Waller counties in the Houston area. Borrowers must have an income at or below 115% of the median income for the area, which amounts to $74,900 for a 1-4 person family.  Applicants must demonstrate solid credit histories, yet can purchase a home with no down payment.

These two measures were high priority items for many homeowners, as buyers in flood zones were unable to close on loans.  Many other buyers also stood to lose a refundable tax credit totaling thousands of dollars due to a backlogged system.   Both deadlines threatened to derail many residential real estate transactions.  According to www.WhiteHouse.gov, the President signed both extensions into law today, Friday July 2nd, 2010.

I hope you have a safe and happy Independence Day Holiday.

Fear over European debt defaults helped pushed mortgage rates to their lowest levels since December according to the Freddie Mac PMMS Index as 30-year fixed rates fell to 4.84%. Fifteen year fixed rates dropped to 4.24%, their lowest level since that index began tracking in 1991.

At these levels, borrowers might consider refinancing from an existing ARM or long term fixed rate mortgage to a 15-year fixed rate loan which will not only shave years off their mortgage, but save thousands of dollars in interest. As an example, a homeowner who refinances a $200,000 30-year fixed rate mortgage at 5.25% to a 15-year fixed rate loan, will save $126,766 in interest over the life of the loan. The borrower’s mortgage payment would increase by $400 per month to $1,504.56 in principal and interest.

Currently, almost 50% of Americans have mortgages with an interest rate of 5.7% or higher. Those borrowers would reap even greater savings from a mortgage refinance. Refinancing from a 30-year fixed rate at 5.75% to 4.75% would generate a monthly payment savings of more than $100 per month and a total interest savings of more than $44,000 over the life of the loan.

Homeowners and homebuyers have been afforded a unique opportunity to finance at lower rates. Conventional wisdom had rates rising over the course of the year as Federal mortgage rate subsidies ended and the economy began to recover. The unexpected financial crisis in emerging European economies has led to a domino effect, bringing investors back to a dollar as a safe haven. While this is welcome news, it certainly won’t last forever.

In the wake of the sub-prime mortgage fallout, Congress has pursued and enacted several measures to increase disclosure and reduce the likelihood of being sold a mortgage product that is unsuitable. It seems, however, the action is being misdirected. Most of the new regulations that are being enacted are aimed at independent mortgage companies and mortgage brokers, rather than at the large banks that created most of the sub-prime programs sold to borrowers. The same firms that received billions of Federal bailout dollars from taxpayers.

One example of these new regulations is the implementation of the National Mortgage Licensing System. Mortgage Brokers have been required to be licensed in most states for years. In Texas, this can include 60 hours or more of pre-licensing training, passing a comprehensive exam, background check, and the maintenance of certain capital requirements. The new National Mortgage Licensing System (NMLS) introduces a system that does exactly the same thing, albeit with lower classroom requirements. It also adds previously exempted loan officers to the rolls, including loan officers that work for “mortgage bankers”. Interestingly, this licensing requirement exempts employees of the large national banks referenced above. It appears that the massive lobbying effort put forth by these banks that drove this decision, rather than a genuine interest in the welfare of the consumer.

In addition, there are more disclosure requirements that are placed on employees of mortgage brokers and independent mortgage bankers that are not levied on banks. While banks make money on the origination of a loan, the interest rate charged to a client, and on the servicing of the loan, they are only required to disclose their direct origination compensation. Other mortgage lenders are required to disclose all direct and indirect forms of compensation. This means it may appear that a bank is making far less on your loan than another mortgage provider when this is not the case.

It seems like all of this has worked. The five biggest banks (Wells Fargo, Chase, Bank of America, Citi, and SunTrust) now dominate the residential mortgage market. They accounted for 63% of all mortgage origination last year, up from 46% in 2007. It is no wonder they have been able to repay their TARP funds.

When you are searching for a mortgage source, be sure you take these factors into account and understand the playing field is not level. What matters most is the interest rate you receive and the fees you pay to your lender at closing, not how or if this is disclosed to you. Also, don’t be as concerned with what business card your loan officer gives you, but more so with the qualifications he or she carries.

Here are some questions to ask:

*   Have you passed a national or state exam, and are you licensed?

*  How many hours of training were you required to have to become a mortgage loan officer?

*  How long have you been a mortgage loan officer?

*  What third-party certifications have you earned in the mortgage field? Did they require testing?

*  How many hours of continuing education are you required to have each year?

If your loan officer doesn’t have quick answers to these questions, it’s probably time to move on.   Being educated in your decision now will make a lot of ‘cents’ in the future!

For years, the credit scoring systems utilized by the major credit reporting agencies used inquiries as a factor in computing your credit score. The number of inquiries on your report, the type of inquiry, creditor, and timing, are all variables in how much or how little your score is affected. In most cases, the impact on your score is minimal as creditors understand that borrowers are going to shop lenders for the best rate and term for their particular loan. There is, however, a new policy that some lenders have adopted in the last several months that involves inquiries but has nothing to do with your credit score.

Recently, some lenders have started requesting an updated copy of your credit report just before closing on the loan to insure that you haven’t taken on additional credit obligations or encountered any delinquencies since first applying for the mortgage loan. Beginning June 1st, these last-minute credit checks will become more common as government mortgage giant Fannie Mae institutes new requirements that also involve additional verification of new inquiries for credit, owner occupancy intentions, and borrower social security numbers. The additional requirements are designed to further discourage fraud and lapses in underwriting by originating lenders.

Under the new rules, if a borrower has had any “hard” inquiries, defined as a consumer-initiated credit request taking place between the initial mortgage application and closing, lenders are required to investigate the inquiry and determine if additional credit was granted that could add to the borrower’s debt burden. Lenders could subsequently reject the applicant based upon a debt ratio exceeding guidelines.

We all know that credit has tightened, both as a result of better fraud detection mechanisms and a difficult economy; this new policy is just another tool to achieve those goals. The bottom line is that borrowers, now more than ever, should resist the urge to shop for cars, furniture, and landscaping before they have signed on the dotted line.

All is not lost.  One of the most underutilized resources available to most homebuyers in the Houston area is the Mortgage Credit Certificate (MCC).  These programs allow many home buyers to obtain a tax credit every year they own the house and pay interest on their mortgage. Yes, you read that correctly. While the first time and repeat homebuyer tax credit was front-loaded with a value of $8,000 or $6,500, what if you could get a tax credit of up to $2,000 each and every year?   This is far more valuable than the popular homebuyer credit.

For example, let’s say a single person or married couple purchases a home priced at $130,000, puts $5,000 down and thus finances $125,000.  Under the First Time Homebuyer Tax Credit, this borrower would receive a tax credit valued at $8,000 that could be claimed on their 2010, or retroactively on their 2009 tax return.  Instead, we will assume they missed the deadline, and their combined income is less than $76,560 per year ($89,320 if they have children or other dependents). If these borrowers qualified for a Mortgage Credit Certificate, they would receive a tax credit each year they own their home. The annual tax credit would be 30% of the interest paid each year.  Using our example above, the value of these annual tax credits over ten years amounts to $17,159.96.  In addition, most MCC programs are transferable to the new owners if the buyers ever sell their home. Most importantly, there is currently no first-time homebuyer requirement!

If you are interested in finding out more details about these programs and how you might qualify, give us a call at (832) 286-1600 and we will walk you through it!

Recent statistics show that 29% of all currently mortgaged homes have negative equity. Not all of these borrowers are facing a job loss or other financial crisis that might result in their losing their home to foreclosure; many people who have been victims of the current recession are now facing such challenges. One of the biggest obstacles for these borrowers is the ability to consummate a “short sale”, a transaction in which their mortgage lender agrees to accept less than the current mortgage amount as payment in order for the home to be sold. While the cost of a lender foreclosing averages 18-22% of the property value, many lenders have been dragging their feet in approving short sales because of overwhelmed loss mitigation departments and policies that dictate an offer be in place before a short sale is considered. This often results in a process that takes months to consummate, frustrating sellers and turning off many potential buyers.

To take advantage of the new program, borrowers must be currently late or on the verge of delinquency and must demonstrate their financial hardship. The property must be the principal residence and  the borrowers must also have attempted to modify their mortgage without success.  Also, banks are required to take action on a short sale request within 30 days.  Loans that are owned or guaranteed by Fannie Mae or Freddie Mac are not automatically included in the program, though they will likely follow suit in short order.

Borrowers will be entitled to receive up to $3,000 in relocaton asistance and lenders can receive a $1,500 servicing bonus upon successful completion of the short sale transaction. Also an option is a deed-in-lieu of foreclosure, where the borrower signs over the home directly to the bank.

The biggest incentive to borrowers in this program is the ability to avoid the long-term negative effects of having a foreclosure on their credit report, as a short sale or “deed in lieu” will not have as significant a lasting effect. Furthemore, lenders will be prohibited from pursuing any collections of deficiency balances from the borrower.

Borrowers looking to take advantage of this program should contact their existing mortgage lender directly and request information on the HAFA mortgage program. Additional details can be found here.