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first-time homebuyer

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.

FHA Loan Limits Extended

Nov 30th, 2011
by Mike.
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FHA Loan Limits Extended

On February 18th, President Obama signed The Agricultural Rural Development, Food and Drug Administration and Related Agencies Appropriation Act of 2012. A provision in this bill reinstated the higher mortgage loan limits that expired on October 1st.  The loan limits had been increased back in 2007 in an effort to stimulate the beleaguered housing markets. The expiration of this provision was proving particularly threatening to high cost markets where alternate mortgage financing is not readily available.

Many Democrats in Congress opposed the increase as did the Obama administration because they felt this would enable FHA to continue to gain market share at the same time the administration wanted private lending to take on a bigger role in home mortgage financing. Ultimately, both the House and Senate voted to advance the bill beyond the votes needed to override a Presidential veto.

The new loan limits for FHA now cap out at $729,750 in designated high cost markets. The loan limit in the Houston area which also includes The Woodlands, Conroe, Tomball, Spring, Katy and other parts of the metro area will remain at $271,050 for a single family property, $347,000 for a duplex, $419,525 for a three-family home, and $521,250 for a four family home. The FHA continues to provide a necessary funding source for home buyers who cannot meet the rigid underwriting requirements in effect for conventional loans and has kept the Houston housing market relatively stable. Getting pre-qualified for an FHA loan is a fairly simple process that only takes a few minutes on the phone with one of our loan officers.

Free Credit Repair Workshop for Houston Homebuyers

Oct 11th, 2011
by Mike.
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If your credit not quite good enough to purchase a home now,  consider attending!

This is your chance to receive FREE advice on how you can repair and rebuild your credit with the possibility of purchasing a home in the near future!

Home Loan Specialists, Inc. and National Credit Federation are teaming up to present a FREE workshop for anyone interested in improving their credit scores.

Saturday, October 22, 2011
10:30 a.m. – 12:30 p.m.
Barbara Bush Library | 6817 Cypresswood | Spring, Texas 77379

Printable Credit Repair Flyer

Click here for a printable version of our flyer to share with friends and family!

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.

Realities and Myths of First Time Homebuyer Programs

May 2nd, 2011
by Mike.
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Houston First-Time Homebuyer Home Loan SpecialistsAs a Loan Officer who works with all of the major down payment assistance, bond, and first-time homebuyer programs in the Houston area, I speak with prospective home buyers every day who are searching for programs that will assist them financially with their home purchase. This article will separate the myths from the realities of these programs and provide some guidance on who are the best candidates for these programs.

First, I want to address what these programs are not. They are not programs to help people with poor payment histories buy a home. They are also not designed for buyers who otherwise have the resources to purchase a home but want to use taxpayer money to do so. Lastly, it is highly unlikely that a homebuyer will be able to buy a home with no money of their own in the transaction.

That being said, let’s look at what these programs can offer.

Most programs designed for first-time homebuyers are funded with block grants from the U.S. Department of Housing and Urban Development. And thus, they are targeted to low to moderate income homebuyers. The income restrictions will vary from state to state and metro area to metro area. In the Houston area, most programs have income limits ranging from $55,000 to $75,000 depending on family size. Often, income limits are higher if the buyer purchases in a targeted revitalization zone; a low to moderate income area the local government is working to turn around.

While a first-time homebuyer program might indicate that a buyer can purchase with as little as $500 down, in reality, it will typically take $1,200 – $1,500 or more to get to the point where assistance is available. A buyer will need to have sufficient resources to cover an earnest money deposit at the time they make an offer (usually $500- $1,000), the cost of an appraisal ($375- $450), and the cost of a home inspection ($300-$500). The exception to this rule would be when a borrower uses a USDA or VA loan in conjunction with a first-time homebuyer program. These scenarios can often result in a buyer getting a rebate at closing for costs already incurred during the home purchase process.

The biggest fallacy with first-time homebuyer programs is the belief that a borrower with poor credit can purchase a home. While this may have been the case several years ago, virtually every program available today will require a credit score of 620 or higher. Most loans are ultimately made by private lenders (not the providers of the programs), and these lenders risk their loans not being insurable by government or private mortgage insurers if established credit underwriting practices are not followed. In the current economic environment, this risk is simply not worth taking to lenders.

The ideal candidate for a homebuyer program is a consumer who has a good credit history and who has some funds of their own to invest in the purchase. Evidence shows that buyers who have “skin in the game” are less likely to default than those who do not. They would also have a stable income with no more than 45% of their gross monthly income going to cover monthly debt payments, including their prospective mortgage.

First-time homebuyer programs can be an excellent supplement that helps an otherwise creditworthy buyer achieve the dream of homeownership. However, no lender or government agency wants to set up a buyer for failure, or allocate limited taxpayer resources on a borrower who has not demonstrated the financial responsibility necessary to own a home.

Increased Down Payments May Be Coming for Houston Mortgages

Feb 22nd, 2011
by Mike.
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Down payment requirements on Houston mortgages might look very different in a few years if a new proposal by President Obama is adopted. The proposal to increase down payments to 10% on federally-guaranteed mortgages is part of a far-reaching effort to reform government mortgage agencies Fannie Mae and Freddie Mac, which were bailed out by the government in 2008. Today, conventional mortgage loans in Houston that are backed by the government require a minimum down payment of 5% for well-heeled borrowers. The strategy is to turn more of this sector of the housing market over to private lenders whom today commonly require 20% or more down.

A direct correlation between has been discovered between the amount of down payment and the risk of foreclosure. An analysis of foreclosures in 2008 by McDash Analytics showed that 16% of foreclosures came from homeowners who paid down payments of less than 3%.  Another 35% were the result of negative equity which, most likely, is a function of both low down payment and a decrease in home prices.

In 1998, the percentage of borrowers who obtained a loan with no money down was less than 4%.  Conversely, eight years later at the height of the housing bubble, more than 20% of loans were made with no borrower investment. Today, almost 27% of homeowners nationally have negative equity, though the numbers in Houston are lower.

In looking at the impact of these potential changes on the home markets in Houston, many have pointed to Canada as a model for what the U.S. mortgage market should look like. In Canada, a far higher percentage of mortgages are retained by the lender on their balance sheets which has led to higher and more consistent underwriting standards. In addition, between 50% and 60% of mortgages initiated have terms of 25 years or less, whereas in the U.S. the benchmark 30-year mortgage makes up the vast majority of financing on newly purchased properties.  Furthermore, 20% down payments are common in Canada as are adjustable rate mortgages, though these variable rate mortgages are far more palatable than the exotic products offered here during the height of the housing bubble. Interestingly, in Canada, mortgage interest is not deductible and it is far easier for lenders to foreclose. Overall, the housing market to the north has remained healthy with foreclosures remaining well below 1% while in the United States, that rate has risen to more than triple that number.

Conservative home equity laws and a relatively healthy economy have spared the Houston mortgage and housing market from the chaos that has plagued states such as California, Florida, Nevada, and Michigan; however, the proposed changes to mortgage financing will undoubtedly affect 90% of all mortgages originated in Texas because they are being sold to Fannie Mae and Freddie Mac. The delicate recovery of the Houston mortgage and housing sector will be delayed by what amounts to a further tightening of the credit markets.

Houston homebuyers are advised to take advantage of near record low mortgage rates, affordable home prices, and the availability of low down payment financing now before this environment is not quite as friendly.

Houston FHA Loans Offer Great Option for Lower Down Payments

Feb 11th, 2011
by Mike.
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Houston FHA loans offer homebuyers in the area the opportunity to purchase a home with a smaller down payment than conventional loans. This home loan program was created in the 1930’s when the Great Depression curtailed home ownership. The FHA program was designed to assist lenders make more home loans by providing some Federal insurance against default. This insurance is funded through mortgage insurance premiums paid by borrowers.

Today, a buyer in the Houston area can obtain an FHA-insured loan to purchase a home with as little as a 3.5% investment. Conventional loans typically require a 5% down payment or more. This investment can come from a borrower’s own funds or even through a gift from a relative or other “interested party”. In addition, the FHA currently allows home sellers to pay up to 6% of the sales price of the home towards buyer closing costs, though this is widely expected to decline to 3% in the near future. Aside from the attraction of a low down payment, the other major alluring factor to a Houston FHA loan is the flexibility of underwriting. While conventional loans mandate credit scores to typically be at least 660 to 680 to qualify, borrowers with lower credit scores may qualify for FHA mortgages. FHA loans are also more flexible in terms of the reserves that are required, debt ratios that are permitted, and employment history.

Houston FHA loans do require both an up-front mortgage insurance premium of 1% that may be paid at closing or added to the loan amount. An annual mortgage insurance premium of between .85-.90% is also required and is included as part of the borrower’s monthly payment.

FHA loans are only available for the purchase of a primary residence and a borrower is typically limited to one outstanding FHA insured mortgage at a time. They also carry a maximum loan amount in the Houston area of $271,050.  If you are interested in learning more about Houston FHA loans, be sure to contact a reputable Houston Mortgage Loan provider.

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.

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