My New Blog

The other day someone called me. They said they were referred by a friend. They had found a home they wanted but when they went to the bank they were denied. They were denied due to lack of income. The reason they did not show enough income was that one of buyers was self employed. Supposedly he did quite well. However he had not filed any tax returns in the last couple of years.

Now I look their information over and review the credit and I also tell them that they do not qualify. However I make two suggestions. I ask if they have someone who can co-sign. FHA allows for non-occupant co-signors with no adjustment to rate. The other suggestion I make is to have the one party go back file his tax returns. They will have to pay the taxes but then they could use the income.

Now here is the kicker. They tell me yes their grandfather will co-sign. Then they ask. Well if we are going to use a co-signor shouldn't we go back to the bank? I ask why? They assume they will get a better deal at the bank.

I asked them if the bank made any of these suggestions. They said “no, they just denied us.”

Usually the person at the bank is not a mortgage specialist they handle a number of jobs. Also usually the mortgage broker can beat the bank as far as rates go, especially on FHA. Why because we are buying the money wholesale. We also have more investors to choose from. I knew the bank they went to. It was a no brainer that we would be a better deal. However the client’s perception was that if you do not need special financing you should always go to a bank.

The Federal Reserve Bank of Chicago recently commissioned a study to find out if it is better to prepay your mortgage or increase your investment in your retirement account. They found overwhelmingly that 95% of Americans are not making a good financial decision by prepaying their mortgage and that they would increase their net worth significantly if they were to invest their additional cash flow rather than reduce their mortgage debt.

Conclusion, debt reduction is not wealth strategy, it’s a cash flow strategy. Wealth creation happens by making sound decisions about where money is invested. The truly affluent would never dream of prepaying a mortgage or owning a home free and clear. In their view, capital tied up in an asset, such as home equity, that is not earning a rate of return, is not prudent.

The Federal Reserve, taking a break from its aggressive rate-cutting policy, chose not to alter key interest rates Wednesday, leaving the Fed Funds rate at 2.00% and everyone wondering where interest rates are headed next.

Since last September, the Fed has cut rates seven times for a total of 3.25%. However, many experts believe that the Fed's decision this Wednesday, along with comments from the meeting itself, indicate an increased concern over inflation. This means the Fed could start increasing rates as early as its next meeting, which takes place in August.

The Fed is in a quandary. The economy has slowed, led by a decline in home sales and rising inflation, stemming primarily from increasing energy prices. The Fed's primary role in relation to the economy is to combat inflation and preserve economic growth. To combat inflation, the Fed will ultimately have to increase interest rates in coming months.

What Does This Mean to You?

If you're looking to buy a house, consider these key points:

• Home prices in some areas are at five-year lows, while personal incomes in that same period have increased. Homes are more affordable for many right now, particularly first-time home buyers.
• Sellers are extremely motivated and many buyers in our area have benefited from the unbelievable deals that exist today.
• Experts foresee a strong rebound in home prices when the economy begins to recover, according to a new report from the Joint Center for Housing Studies. That means buyers today will be sitting on valuable properties tomorrow. Remember, annualized appreciation for homes exceeded 6.35% from 1940 to 2000.

Housing booms follow housing busts – and the savvy buyers aren't afraid to jump into a tough market. But these savvy buyers know that homeownership is a long-term investment. Call me to discuss these points and get your purchase strategy on track. Ultimately, population growth and demographics point to a stronger housing market in coming years.

Even if you're not looking to purchase a home, opportunities still exist. With the Fed taking a breather, this doesn't mean you should be taking a break. It's never been more important to create a financial plan that makes the most sense to you and your family's long-term goals. Give us a call.

In the Cleveland market there is a lot of inventory.  In other words there are a lot of homes for sale.  This means you can probably find a good deal out there if you take the time to search.

How can you make sure you are buying safely and at the right price?

Step 1 is the old real estate saying "Location, Location Location."  Learn the neighborhoods and do your research.  You may be able to get a great deal in an undesirable neighborhood, but what then.  How will it appreciate?  You are better to buy in a mature stable neighborhood.  Even if you have to pay a little extra.

Step 2 Price.  How do you know if the home is priced right?  There are a number of ways.  My first suggestion is to partner up with a good real estate agent.  Don't call the sign. Instead find an agent you trust.  Secondly use my home scouting report.  The Home Scouting report allows you to track neighborhoods.  You will not only see the listing in an area but also what has sold.  I will put a link at the bottom of this post.  You can sign up for free.

Step 3 Spend the money on a home inspection.  The appraiser is not a home inspector.  The purpose of the appraiser is to make sure the property is a good investment for the bank, not for you.

Step 4 Research your loan options.  While every one else was pushing the neg Am ARMs, 90% of my business was fixed.  Now I do not think there is anything wrong with an ARM and other financing vehicles.  However I do think you need to be educated on how they work.  I like to say there is not one perfect mortgage out there.  When I pre-qualify someone I will show them what loans they qualify for and what advantages and disadvantages over the other choices.  I would prefer my clients make a sound and intelligent decision.  The choice you make may be an adjustable or balloon mortgage, but at least you will know why you chose that. 

The Home Scouting Report is a tool I use to help shoppers gather information on homes for sale.  It allows you the consumer to take control of your search.  It lets you track homes and know before most agents when something on a home has changed.  For example it sold, it was reduced in price or it just went to pending status.

Well now you can also see everything that sold, between the last two months to the last two years, in the neighborhood you are interested in.  This is strong because it will help educate you before you ever put an offer in. You can also track your own neighborhood to see what is selling there.

Education is why my partners and I do this for our clients.  We understand that the average home shopper actually goes through what we call "an education phase".  You do not need someone shoving a property or mortgage down your throat.  You need to get educated and feel comfortable before you buy.  We think it is so important we let people use it EVEN if they are planning on using a different realtor or mortgage company.

Who are my partners?  I have teamed up with some of the top agents from Re/Max, Keller Williams, Real Living Realty One, ERA, Coldwell Banker and Mission realty.

If you would like to try out or get more information on the Home Scouting Report you can Click Here.

In the last four of five weeks Loan applications have been down.   This is according to the Mortgage Bankers Association.  We are seeing a reduction in refinancing because of the spike in interest rates.

The national average rate was reported at 6.57%.  The nice thing is my rates were at 6.5%.  Ha, I beat the national average. 

Luckily the last two days have worked in our favor as far rates go.  The mortgage backed securities have improved somewhat.  If it keeps up we should see some lower rates today. 

Inflation fears are still hurting us.  Mortgage backed securities do not like inflation. 

If you are waiting to refi until the market hits a certain rate, let me know.  I have a rate watch program that I can put you on.

Now that the actual mortgagee letter from HUD has come out, it does not look so bad.  I first said that the rates and mortgage insurance would change because of credit score.  We now know that only the mortgage insurance (MIP) will change.  The change is not very drastic.   Even at the worse case it is still better than HUD was a number of years ago. 

However we are still seeing FHA loans having risk based pricing by the investors.  Oh well guess we cannot have everything.

Or in english Hud is being hard headed.  Why does HUD keep trying to stop the down payment assistance programs?  They have been proven to be a better deal for home buyers than the low down payment conventional programs.  This means less chance of foreclosure.  Here is excert from Nehemiah.  Nehemiah is one the non-profits that make this program possible.

Nehemiah Corporation of America Responds
to Re-Submission of HUD Rule Banning Private Downpayment Assistance

The following statement was made on June 9, 2008 by Scott Syphax, President and CEO of Nehemiah Corporation of America, in response to HUD’s resubmission of a rule banning private downpayment assistance.

“It is astonishing that HUD has the temerity to resubmit its rule banning private down payment assistance, given that two district courts have thrown out the rule, downpayment assistance has received extremely strong bipartisan support in Congress and has been championed by a number of significant and influential consumer and policy groups including the US Conference of Mayors, National Urban League and Congressional Hispanic Caucus. It is clear that the priorities of Commissioner Montgomery do not lie with low to middle income families to whom he is sworn to serve.

At this time, it is critical that the consumer groups, policy makers, government and elected officials, real estate industry and those who serve first time homebuyers in this country stand up and fight this rule that will do serious damage to a particularly vulnerable group with little political capital at this crucial time.

Programs like Nehemiah’s are putting people in homes, generating wealth and strengthening communities. The government can not and should not be in the business of restricting access to homeownership. Montgomery’s proposed rule would shut down an enormously successful program and slam the door on hundreds of thousands of families and their opportunity for homeownership in this environment. Nehemiah and other supporters of downpayment assistance have fought and will continue to fight on behalf of those who are capable and deserving of becoming homeowners. We will not watch Commissioner Montgomery or HUD sever the only lifeline available to the low to moderate income families.”

Starting tomorrow, June 17th, the rates for the OHFA programs will be going up.   OHFA stands for Ohio Housing Financial Agency.  They are offer subsidized interest rates through the sale of bonds.  These rates are effective for FHA and Conventional loans.

So tomorrow they go up.  However they are still a good deal.  If you wish to see if you qualify for these special programs give me a call or leave me a message here.

Taking the step into home ownership is one of the most important financial decisions a person will make in their lifetime. There are many factors to consider when embarking on this venture. Literally hundreds of loan programs are available, and it is important to find the one that best fits your personal long-term goals.

First and foremost, you must have a mortgage consultant in your corner that is willing to take the time to know what your long-term goals are. Communication is the key factor here.

Curious prospective home buyers sometimes turn to Internet-based services just to see what current interest rates are. But a faceless web site will not take the prospect’s future financial planning into consideration or guide the potential borrower through the many nuances of the loan process. When shopping for a home loan, be wary of web-based services that offer programs to reel prospects in with attractive rates that are based upon unrealistic time frames.

If a lender is offering a terrific rate based on a 10-day lock-in period, it is unlikely that the potential home owner would actually be able to find their dream home, get through the negotiation process and win approval from a lender within such a short period of time. This is called short-pricing, and when it comes time to close the transaction, the rate that was originally offered is simply no longer available. As a result, the unfortunate prospect is bulldozed into a loan program with a higher interest rate.

It is highly unlikely that a qualified loan originator whose business is based upon referrals will use unscrupulous tactics such as this to get new customers in the door!

Once you have found a mortgage consultant that you feel comfortable working with, lay your goals out on the table because it will have a tremendous impact on choosing a loan program that meets your specific needs. One of the most important factors to consider is how long you wish to borrow the money for. For example, if you know you will only be in the home for five years, it wouldn’t make sense to opt for a 30-year loan program or pay points up front to secure a lower interest rate. You would not be in the home long enough to benefit from such action.

Your mortgage consultant should be able to narrow down a selection of programs based on the information that you have provided, and present you with an easy-to-read spreadsheet that clearly defines viable options for your interest rate and amortization schedule, monthly payment and any potential savings you may realize by paying points up front.

This years is going to be a great year for first time buyers.  There is plenty of inventory which means there are deals to be had.  The rates even though they are spiking are still great.  As a first time buyer you do not need to sell a property before you buy.  This is your year.  Take advantage of it.

Starting July 14th it will be a new FHA world.  I have seen many major changes with FHA over my 20+ years in the industry.  I can still remember when FHA used a net income and residual income to qualify.  I think that was sometime before electricity. 

Anyway it looks like we are in for a big change.  FHA will be coming out with RISK BASE PRICING.   What this means, is that your interest rate and insurance premium, will be determined by the weekest credit score.

Fha may still be the best deal in town, however it will not be as good for the average consumer as before.  We will not know for sure until we see the new FHA pricing, but it is not looking good.

I have seen this before in my 21 years in the mortgage business.  After a series of tightening the guidelines for approval they are finally easing up.  We are seeing some of the old programs come back for tougher credit.  They are getting rid of some tightening Loan to Value restrictions.  In other words they want more people to be able to qualify for financing again. 

But on the other hand, the computer programs that approve many of the loans just tightened the requirements.  Also the PMI companies have started to really clamp down on property values. 

So are they tightening or loosening?  All I know is, if you have a small to no down payment, FHA is still your best bet.  When everyone was taking out the "non-Conforming" loans, FHA was still your best bet.  I would always look to FHA before looking at the High LTV conventional and non-conforming loans.  I still do. 

This year is looking like a great year for FHA.  They seem to be the best game in town.