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first-time home buyer

Finding Down Payment Funds for Houston Home Buyers

Dec 13th, 2011
by Mike.
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In today’s tight credit markets, behind credit issues, the second most common reason for not being able to qualify for a mortgage loan is a lack of liquidity. This means potential borrowers do not have sufficient funds available for down payment, closing costs, and/or pre-paid interest, taxes and insurance.

Here is some good news:  most closing costs, and even pre-paids, can be funded with seller contributions. Seller contributions are funds that the seller agrees to put towards the buyers closing costs as part of the purchase and sale agreement. Some mortgage programs limit these contributions to around 3% of the purchase price, but others allow up to 6% seller contributions. In many cases, if negotiated properly, all costs associated with closing can be funded by the seller.

Most conventional loans require that down payment resources come from the borrowers own funds, but government loans offer more flexibility. On an FHA loan, for instance, down payment funds can come from gifts as long as the gift is from a direct relative or other person with a demonstrated financial interest in the borrower such as a co-habituating partner or employer. It is important that these funds are truly classified as a “gift” instead of a loan as borrowed funds are generally not acceptable as a down payment source.

One exception to the borrowed funds rule is a loan on assets in a 401k plan. Borrowers are allowed to use proceeds of a loan from their retirement plan for down payment purposes as long as the repayment schedule is counted in the borrower’s debt-to-income ratio. Another little known source of funds that may be used for down payment purposes is assets in an Individual Retirement Account, or IRA. First-time homebuyers, defined by the IRS as not having owned a home in the past two years, can take up to $10,000 penalty-free from an IRA to use for a down payment. Roth IRAs would have no taxation in this case since they are funded with post-tax dollars. An interesting clause in this first-time homebuyer rule is that the homebuyer need not be the owner of the IRA.  As long as the funds are used for a qualified first-time homebuyer purpose, a parent, grandparent, or other relative can use funds from their own account and gift them to their child, grandchild or other relative without the penalty.

For those borrowers with good credit scores but who fall into the low-to-moderate income thresholds established by the US Department of Housing and Urban Development, down payment assistance may be available. Keep in mind that these programs will still require some borrower contributions to cover an earnest money deposit on the sales contract as well as the cost of an appraisal and inspection. Also, funding is not always available so it is important to check with a qualified Houston mortgage lender to ensure funds availability.

One final tip if you are still tight on your down payment funds. If you anticipate receiving a refund on your 2011 tax return, you should file as soon as possible in January. The sooner your return is received and processed by the IRS, the sooner you will receive your refund from the IRS which can be used toward your down payment!

While the overwhelming majority of “no money down” programs left the mortgage financing landscape years ago, borrowers can still obtain mortgage financing without breaking the bank using some of the strategies outlined here.

Weekly Texas Mortgage Rate Update – July 22, 2011

Jul 22nd, 2011
by Mike.
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Home Loan Specialists Houston Mortgage Rate WatchAverage rates for the benchmark 30-year fixed mortgage as reported by Freddie Mac stood at 4.52% this week. This represents a change of +.01% over last week’s average.

The average for the 15-year fixed amortization equaled 3.66%, also increasing .01% on the week. Both averages are within .02% of 2011 weekly lows.

Mortgage backed security prices have rebounded this week as fixed rate investors worldwide are favoring US Treasuries over Euro back offerings. Economic chaos across Europe appears to be influencing bond traders more than the potential for American debt default looming August 2nd if a political compromise is not reached.

Today, Home Loan Specialists is posting par rates of 4.25% on 30-year fixed conventional and FHA loan programs. 15-year conventional rates are listed at 3.5% with 10 year rates available as low as 3.25%.

Home Loan Specialists, Inc. – Texas Mortgage Rate Watch – July 8th, 2011

Jul 8th, 2011
by Mike.
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Home Loan Specialists Texas Mortgage Rate Watch Average rates for the benchmark 30-year fixed mortgage as reported by Freddie Mac stood at 4.60% this week, up .09% from the previous week. The average for the 15-year fixed amortization equaled 3.75%, up .06% on the week.

The only relevant news came with this morning’s deeply disturbing unemployment report. It had been forecast that unemployment would remain unchanged at 9.1%. However, the report illustrated an actual increase to 9.2%, a clear signal that more and more Americans are losing their jobs.

Home Loan Specialists is posting par rates of 4.375% on 30-year fixed conventional and 4.25% on FHA loan programs. 15-year conventional rates are listed at 3.625% with 10-year rates available as low as 3.25%. Rates appear headed to lower levels as a result of the jobs data.

Rates on VA loans remain very attractive – as low as 4.5%.  For more information, check out our Texas VA Loans Website.

Our recommendation is to lock into fixed rates during the coming week. For buyers who have been pre-approved, this is a golden opportunity to secure great long-term fixed-rate programs.

Fannie and Freddie Make More Work for Houston Mortgage Applicants

Feb 7th, 2011
by Mike.
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Yet again, Fannie Mae and Freddie Mac have created another hurdle to getting a Houston mortgage loan application processed efficiently. These obstacles revolve around detailed investigations into inquiries appearing on an applicant’s credit report dating 120 days prior to application and continuing through closing.

Effective February 1st, 2011 (and even earlier for some lenders gearing up for this change), Freddie Mac is requiring an investigation into any inquiries on a borrower’s credit report that appear within four months of their Houston mortgage application. Lenders are then required to document the outcome of these inquiries to determine if additional debt was granted that could compromise the underwriting of the file to Freddie’s standards. For example, a Houston mortgage inquiry could indicate a borrower is merely shopping for the best rate and terms on their loan, or it could indicate an applicant is simultaneously applying for a loan to purchase a rental property which may lead to debt ratios higher than Freddie’s guidelines, or a different pricing structure.

Fannie Mae has mandated that lenders pull credit just prior to closing and that any interim inquiries be fully documented as to their outcome. A new credit card or installment loan inquiry can also make the difference between an applicant qualifying for a loan, or whether the loan needs to be underwritten all over again. We recently had a client who, despite our recommendation, took out a lease on a new vehicle shortly after their Houston mortgage loan application. This inquiry and the credit account did not appear on their initial credit report and was not disclosed by the borrowers. Two days before closing,  a revised credit report was pulled and the inquiry appeared. While the clients could easily afford the additional debt, securing details on the credit terms took an additional day, and the loan had to be returned to underwriting for re-approval. This delayed our closing by three days and meant our buyer had to pay a penalty for not closing on time.

Simple advice to homebuyers is to refrain from purchasing anything on credit, whether new or existing credit accounts, prior to or during, the loan process. However, it is better to be safe than sorry.  Ultimately, until everyone signs on the bottom line of their Houston mortgage and that loan funds, the home purchase and loan commitment can still come unraveled.

Government Mortgage Loan Limits to Remain Unchanged for 2011

Jan 10th, 2011
by Mike.
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The Federal Housing Finance Agency has announced that conforming loan limits in Texas will remain unchanged for 2011. This announcement affects conventional loans underwritten to Fannie Mae and Freddie Mac standards, FHA loans, and VA home loan guarantees. There had been significant speculation that lower loan limits for FHA were in the works as a result of an expiration of temporary increases and lowered home values. Conventional loans in Texas will continue to be available up to $417,000 through September 30, 2011. The $271,050 limit on single family FHA loans will also be extended to September 30th. VA loans do not have a formal loan limit, but instead guarantees 25% of loans made up to $417,000 through September 30th for veterans who have their full entitlement available. Loan limits for 2012 will be announced later in the year.

In 2008, Congress expanded the loan limits on FHA loans in response to the housing crisis. This provision allowed the government to provide more guarantees in higher cost locales which would have been crushed if credit became unavailable. This expansion temporarily allowed guarantees up to 125% of median home prices instead of 115%. Furthermore, the current base loan limits were set during boom housing years and would likely be reduced if the traditional metric were used since housing prices around the country have declined.

Another cause for concern over extending the increased loan limits is the default rate. Statistics released by the Federal Houston Administration indicate that larger FHA backed loans have higher delinquency rates than smaller loans which appear to reinforce the perception that the increased loan amounts have led to more defaults.

Fortunately, much of this debate only affects some of the higher cost areas of the country. Due to affordable housing prices, Texas has historically qualified for FHA’s floor limit and did not necessarily benefit from the expanded loan limits mentioned above.

2011 is Going to be Great!

Jan 7th, 2011
by Mike.
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2010 was tough on many Americans financially – the economy was rough, unemployment was high, and spending was down. The housing market seemed to be a disaster with foreclosures and low sales volumes dominating the news waves.

As bad as last year seemed to be, I would now like to paint a brighter picture for the future and give you seven BIG reasons to be hopeful if you are ready to become a homebuyer in 2011.

1. The Dow Jones industrial average recently exceeded 11,650 for the first time since June 2008. Additionally, technical indicators support the continuation of this trend which began in earnest during July, 2010. Finally, recently published economic indicators such as the Initial Jobless Claims and Chicago Purchasing Managers reports have been supportive of strengthening during the first quarter.

2. Home sales are on the rebound. The National Association of Realtors reported a rise of 3.5% in November; economists had expected an increase of only 2%.

3. Mortgage rates (though higher than the lows of last fall) continue to remain very low and seem to have reversed their early December trend. The sale of mortgage-backed securities showed a significant uptrend during the last week of 2010, causing rates to moderate approximately .25%. FHA rates are particularly attractive at present running .25% below conventional. This further promotes lending to mid-income borrowers of modest value housing. Also, the USDA has re-funded their Rural Housing program allowing for 100% loans in rural areas of Texas and the U.S.

4. New regulations imposed January 1, 2011, on the mortgage industry will continue to increase borrower security and ensure full disclosure of terms and rates.

5. The election of a conservative majority to the House of Representatives will force a new spirit of bipartisanship in political circles. As has been promised by the administration and most of the incoming congress, jobs will be the focus.

6. Tax increases have been avoided. The lame-duck congress passed the tax rate extension thereby maintaining current federal income tax rates which should incentivize employers to add staff in 2011.

7. Lenders and investors are soliciting for mortgage broker/banker business. Account executives from lending sources are very actively promoting the availability of funds for qualified borrowers.

These are seven solid fiscal reasons that Texans and others across the country should be optimistic about the possibility of becoming homeowners in 2011. If you are entertaining the idea of buying a home in the near future, be sure to talk to a local, certified mortgage officer to discuss your options.

Why You Might End Up Hating Your Dream Home

Aug 4th, 2010
by Mike.
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You’ve found the perfect house:  the floor plan is exactly what you’ve been looking for, the price is right, and the sellers even threw in the flat screen television to get it sold.  So, what’s the problem? Well, unless you do your homework, you might just be that seller in another year or two.

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.

Bank or Broker? How Should You Get Your Mortgage?

May 24th, 2010
by Mike.
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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!

Thought the Tax Breaks Were Over? Think Again!

May 4th, 2010
by Mike.
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Unfortunately, the First-Time and Repeat Homebuyer Tax Credits expired last week.  However, even though this powerful tax incentive is now over, it doesn’t mean that you are out of luck.  There are undoubtedly many prospective home buyers, like you or someone you know, who simply needed more down payment resources, had to work on a couple of credit issues, or could just not find the right home before the deadline expired.

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!

Momentum Builds for Extension of First Time Homebuyer Tax Credit

Sep 25th, 2009
by Mike.
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Good article on the popularity of the First Time Homebuyer Tax Credit and the momentum building in Congress to extend the deadline for six months. This would push the deadline back to the end of may, 2010. Far from a sure thing, but good news for those borrowers needing a mortgage who just can’t get closed in time due to an inability to find a home or the time required to get approved for down payment assistance programs.

This might also lead to lifting the suspension on the TDHCA (Texas) 90-day interest free loan program and Mortgage Advantage Program. Stay tuned!

http://money.cnn.com/2009/09/17/real_estate/homebuyer_tax_credit_claims_soaring/index.htm

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