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Everett mortgage: The smart way to buy your first home.

Saturday, November 21st, 2009

I am going to suggest you see not one or two professionals at first.

I am suggesting three.

The first person you should see is a professional lender. Find one you can trust. I believe that the lender who has to tell you everything is more trustworthily than one who doesn’t. I suggest you use a mortgage broker and not a mortgage banker. Here is why. Bankers don’t have to disclose nearly as much as a broker does. That means a banker can hide fees and YSP from you. I know you are asking what is a YSP? A Yield Spread Premium is a rebate the lender pays for your loan. If the going interest rate is 5.25% but the mortgage banker gets you to take a 5.5% loan he gets money on the backside of your loan. The mortgage banker doesn’t have to tell you about that money. If a mortgage broker has you take a 5.5% loan he at least has to tell you what he is making on the backside. You see mortgage bankers have a very powerful lobby in Washington DC. Brokers don’t. There really are very good reasons why YSP are allowed. For example suppose you have your down payment but not much more. Suppose your real estate agent wasn’t sharp and didn’t get the seller to pay your closing costs. A loan costs anywhere from $5000 to $10,000 and sometimes more. A good lender will use the YSP to pay those costs for you. There are other reasons for a YSP but we will save that for another time. Your lender will tell you how much you qualify for and thereby how much home you can afford. I suggest you might try one of two lenders. Cheapest is almost always just that the cheapest and nothing more. In lending just as in life you get what you pay for.
The next person you should see is a tax professional. Tax planning is always best done before the fact and not after it. A tax pro will be able to tell you how a purchase will impact your personal tax return. A good tax pro will also be able to pick up the “fees” the lender will charge. You see many of the fees lenders charge on a purchase are named one thing but are really interest in disguise. That interest in disguise becomes a major deduction in the first year of your purchase. A good tax pro will tell you how to increase your take home pay to make buying your first home much easier. Because interest is deductible and rent isn’t a home payment is not the same as a rental payment. So $1800 in a home payment is usually about the same as $1500 in rent. A tax pro can explain and show that to you.
Now you finally get to your real estate agent. A good agent will listen to you and show you a home you can afford. A good agent is more interested in making you happy than in their commission. There might be an exact home out there waiting for you. Then again there might not be. Pick a neighborhood in transition. If the right home isn’t available wait and it might appear. A proactive buyer might look at the cosmetic fixers in the right area. A proactive buyer might actually approach some of these absentee owners and make a lowball offer and find thereby find a heck of a bargain. Just because a home isn’t on the market right now doesn’t mean it’s not available for the right price. If you find an interested seller have your agent do the negotiating because that’s what they do. Just because you don’t find the right home right away don’t give up. Many buyers look for months to find the right bargain.

In previous posts I mention how to look for a neighborhood in transition.

Also how to tell if that neighborhood is actually in transition. Buying your first home should be an adventure, it should be fun. Have lots of fun.

Jim Johnson

Posted in FHA Mortgage, Mortgage Everett, Real Estate Agents, VA mortgages, mortgage | No Comments »

Everett Homes for Sale: HVCC Finally Under Review

Saturday, November 7th, 2009

HVCC is under attack and it deserves it. Does the HVCC affect FHA mortgages? What exactly is the HVCC and how does it affect homes for sale in Everett. HVCC means Home Valuation Code of Conduct and applies to how appraisals of real estate are done. This really has crippled the real estate business. It has consistently brought in low ball values on homes. Finally a few in congress realize what damage it is doing our economy. These few congressmen are trying to force a review and postponement of enforcement of the HVCC. HVCC was created to cut down fraud.

This has crippled the refinance business, just when we need the ability to refinance adjustable rate mortgages whose rates are going thru the roof. Because of the low ball appraisal a home will have no equity for the closing costs associated with a refinance. Most home owners don’t have $6000 to $8000 to pay out of pocket. With an interest rate hike this forces home owners into foreclosure when they didn’t have to go.

In the case of a sale when a willing buyer and a willing seller make a deal a low ball appraisal screws it all up. An appraiser doesn’t make a market. Assuming a knowledgeable buyer and a knowledgeable seller make a deal, that is the market.

And no HVCC doesn’t affect FHA mortgages or VA mortgages at this time. Although it is being considered for future usage in FHA mortgages. There are many complaints about HVCC. HVCC appraisals are being done in some cases by non professionals. Also many times an appraiser from outside the area is called in to value a home. For refinancing and purchases this can be a disaster. Without proper knowledge of the local area many valuations come in so low as to make transactions impossible. Many believe that HVCC is holding the real estate market down and slowing the over all recovery of the economy of the entire US.

HVCC was designed to stop fraud but it hasn’t. Fraud for October 2009 is up almost 50% over the month of October 2008 just one year ago.

Currently HVCC is used only for conventional mortgages. But HVCC has killed the conventional mortgage business. Almost all loans are now FHA mortgages or VA mortgages. This is because they don’t have to use the HVCC guidelines. Another problem for the future becomes the huge liabilities HUD takes on because they are the only agency making loans. It is far better to spread the risk around. Spreading the risk is a lesson we should have learned from the mortgage bubble.

Anyone who thinks the government can help is blind to these facts. Barney Frank, Chris Dodd and Andrew Cuomo are responsible for this fiasco. So far almost everything the government has done has hurt the consumer. Why doesn’t that surprise me?

Have you ever heard of the Law of Unintended Consequences? Remember this the next time some government hack wants you to support another big government takeover. It never works as planned. In fact it never works at all.

The fools running our government have made our country a huge debtor nation and screwed up our economy so badly that it may take generations to work off the debt.

In business if you fail you go bankrupt. In government if you fail you get reelected. The foxes are in charge of the hen house.

So anyone, FSBO or professional real estate agent with a home for sale in Everett should consider the HVCC and it’s impact on your transaction.

Posted in FHA Mortgage, FSBO, Homes for Sale Everett, Mortgage Everett, Real Estate Agents | No Comments »

Everett mortgage: ARM’s set to adjust will hurt economy

Friday, November 6th, 2009

ARM’s set to Adjust in Next few Years will bring another round of Foreclosures

Millions of adjustable rate mortgages (ARM) are set to adjust in the next few years. This will probably bring a new round of mortgage foreclosures.

About 10% of all mortgages are ARM’s set to adjust. Many will go up and a few will go down. Almost every sub prime loan will adjust upwards. Almost every FHA mortgage and VA mortgage that is adjustable will go down. A few FHA – VA mortgages will remain the same and almost none will go up. This is why I consider the FHA mortgages and (if you qualify) the VA mortgage the best mortgage on the market.

How did this market happen? Well traditional ARM’s usually start lower than fixed rate mortgages. This allows a buyer to qualify for a bit more home. The theory being that as time goes by and the loan adjusts the borrower will make a bit more money and be able to afford the loan. Or a refinance is done at an advantageous time and the borrower is set up with a fixed mortgage. As the roaring 90’s came the qualifications for a home loan were lowered. The reasons they were lowered is for another post but lowered they were.

Now on to current events. Sub prime loans were written with the potentional for huge rate increases when they adjust. Again the idea was a sub prime borrower would improve their credit and qualify for a prime loan over the fixed period of time before the rate change. But when the housing bubble collapsed and values declined we have big trouble on Main Street. Many if not all sub prime and alt A borrowers are upside down in their loans. You say what are alt A loans? Well those are what we call liars loans. These are stated income. zero down, reduced or no document loans. The borrower (in theory) had good to great credit and the lender took the borrowers word that they actually didn’t lie to get the loan.

Keep in mind these loans are not evil in and of themselves. Many self employed people have a hard time proving income. Some work for cash on some jobs. Others write off everything on taxes so taxable income is lower to avoid tax liabilities. Also these loans were originally used for good to great credit borrowers. Standards were lower by politicians as time went by.

Now we come to Option ARM’s. These loans were the ones with a pick a payment plan. Most offered 4 payments every month. 1) Usually a very low payment that produced a negative amortizing effect. That meant your mortgage balance when up every month you made that type of payment. Usually this was the only payment ever made. 2) An interest only payment. That meant your loan balance didn’t increase but it didn’t go down either. 3) A 15 year payment. This was usually a very high payment and paid the loan off in 15 years. 4) A 30 year payment. There will be tens of thousands of these loans coming due every month for the next 2-3 years. Almost every single one of them will be upside down in value.

The Option and alt A mortgages coming due in the next few years will present a very difficult problem for our leaders. Given the fact our leaders can’t or don’t understand the mortgage business I personally will not hold my breath expecting a good result. This is why I have always been an advocate of the FHA mortgage and VA mortgage. These loans limit the increase in a rate to only one point up or down.

More tips and information on my blog.

Posted in Mortgage Everett, Real Estate Agents, VA mortgages | 7 Comments »

Is the benefit of the housing tax credit overstated

Wednesday, November 4th, 2009

If the credit could be applied the down payment this would make more sense.

Many think the credits benefit is exaggerated. Instead I ask which comes first the mortgage or the down payment? Congress is close to extending the credit. In fact they are considering extending the credit to existing home owners. That new credit would be up to $6500. But that might not work because many of those buyers are locked into a home that has lost value and may not be salable right now. If that credit is allowed for investment property then you might again accelerate sales. The senate has proposed the extension of the $8000 first time buyer’s credit until April 30, 2010. If the credit is extended over the winter just how much will it affect sales? That is the slow time of the year for real estate. Will the credit improve sales at the slowest time of the year? Does the credit simply accelerate purchases that were going to take place anyway? That was the criticism of the “Cash for Clunkers” program. I think that the cash for clunkers was a major bust. Most of the cars purchased were foreign made. It really didn’t help domestic production.
The way the first time buyer’s credit is set up really doesn’t help create sales. The only way it could do that would be to have the credit function as the down payment. Consider this: To buy a big ticket item you have to save up the down payment. Most of the users of the credit are using FHA mortgages. The FHA mortgage requires a 3.5% down payment. There are 2 valid schools of thought here. One thought is that in order for the buyer to value the home they need “skin in the game”. By that they mean money out of their own pockets. The other idea of stimulating the economy wants to create home sales. If you allowed the tax credit to be used as part of the down payment I think you would actually create sales. The trick is the mechanism used to equate the credit into the down payment. Since the credit is refundable that should be easy. By refundable I mean you can get the credit even if you didn’t pay any taxes. Since the credit exists many FHA mortgage applicants are getting “Gifts” from family members. I think that many of these gifts will be repaid from the tax credits, I don’t want to look in that horse’s mouth.
OK we have had 4 months in a row of increasing home sales. Is that connected to the credit? Nobody knows. “Failure to act now could derail the fragile housing recovery even before it takes root,” said Jerry Howard of the National Association of Home Builders. He said this to congress Wednesday urging them to stretch the tax credit out even longer than presently considered. Howard estimates that the credit has helped to create 200,000 jobs, helped drive home sales up, stem foreclosures and stabilize prices. I will just bet he thinks the credit is better than hot and clod running water too. Howard’s claims seem exaggerated to me. Some economists think as I do that the credit’s impact is overstate.
Recently a report was released stating that a huge amount of fraud was connected to the credit. I question the timing of the release of this report. I also think the government’s incompetence is the real problem. If the federal government can’t run the economy, social security, Medicare, Medicaid or the VA hospitals what makes everyone thing they can run this? I will not go off on a rant about government incompetence but really think about this in that light.

In the end the tax credit will cost the US Taxpayer far more than the actual dollar amount of the credit. Fraud and waste and incompetence will double or even triple the cost to you and I. It just might create more bad FHA mortgages out there that you and I have to pay for.

More thoughts and ideas on my web site.

Posted in FHA Mortgage, FSBO, Homes for Sale Everett, Mortgage Everett, Real Estate Agents, VA mortgages | 1 Comment »

Tax benefit to buying a home with an FHA mortgage

Tuesday, November 3rd, 2009

True or False: There is a tax benefit to buying a home with an FHA mortgage

Things a Real Estate agent or FSBO should know.

Well the answer is yes, no and maybe. Oh yeah how can that be? Is there more benefit to having a conventional or FHA mortgage? Just so you know that I’m not blowing smoke. I used to be an Enrolled Agent that meant at one time I could practice law in tax court. I no longer practice tax law or preparation. But I still retain a bit of working knowledge. So now in the first year of an FHA mortgage or any mortgage for that matter there are extra deductions that make for greater tax benefits. After the first year tax benefits from an FHA mortgage are much easier to calculate. And since you will probably keep your mortgage for more than one year let us project tax savings for the second and subsequent years. The second thru fifth year of a mortgage will have similar tax benefits.

OK now that I got the lawyer crud out of the way some assumptions. Yes, yes I know what assumptions do. A single person and married couple are buying a home. The loan amount is $300,000 with annual property taxes of $2800. Terms are 30 years fixed at 5.5%, so the monthly payment (P & I only) is $1703.37. OK we have Jane Single (clever, how he slips a single gal in) and Jim Couple and Mary Couple married kids. Both make the same money (proving that women actually do make more than guys) $70,000 and this is taxable income.

From paragraph one above the part that is yes. If you happen to be single your tax benefits are pretty good. Without boring you to tears with numbers and such here it is. As a single person with taxable income of $70,000 you pay $11,513 in federal income taxes. When you deduct the $2800 in property taxes and the $16,399.19 in interest paid you lower your taxes to $8318 from $11,513. This is a saving of $3195 or $266 per month. So yes you do have a tax benefit.

Now the maybe or no part for M/M Couple. They have the same taxable income in fact the same everything. Before they get their mortgage their taxes are $6896 and after they are $5726. There is a tax savings of $1170 per year or all of $97.50 per month. So the benefit is there but you can definitely answer maybe or even no.

So Mr. FSBO or Ms. Real Estate Agent what do you tell your client. What do you say when the ask, “Is there a tax benefit when I buy a home with an FHA mortgage?’ Now you can definitely say, “Yes or No or Maybe.”
thefhaloanbuy@aol.com

Posted in FHA Mortgage, FSBO, Homes for Sale Everett, Mortgage Everett, Real Estate Agents | 2 Comments »

Mortgage Everett: How Is Your Credit Score Calculated Part 1 of 2

Friday, October 30th, 2009

Mortgage Everett: How Is Your Credit Score Calculated

Part 1 of 2

Things you should know if you are thinking of applying for a mortgage or any type of credit for that matter. There are 5 components that make up how your credit score is calculated. Each has a certain weight given to it, they are:

Payment history 35% of you credit score
Debt 30% of you credit score
Length of credit history 15% of you credit score
New credit 10% of you credit score
Type of debt 10% of you credit score

Your credit scores start at 850 and goes down from there. If you can fog a mirror you will have at least a 350 score. Each of the 3 bureaus, Transunion, Equifax and Experian have a different way to calculate your scores. Each uses a different model. Transunion uses FICO, Equifax uses Bacon and Experian uses Fair Isaac. Each uses what is called different algorithm (that’s a fancy word for formula) to arrive at a score. Therefore each bureau will come to slightly different score for the same person. Also not every business uses all three bureaus so there will be different scores for the same person.

Payment History (35%): How do you repay your debts? When was your last late payment? Obviously the fewer lates you have and the older they are the better. Avoid “rolling” lates. This is where you miss a payment and then make your regular payment but that late just keeps rolling over. Call your creditor and work that out.

Debt (30%): What type of debt do you have? There are only 3 type’s debt and they are installment, revolving and mortgage. Revolving debt is the only debt that really causes problems. Since revolving debt is critical to maximize your score never charge more than 30% of your credit limit. Points are taken from your score as you gradually approach 90% of your credit limit. After 90% you lose all points available. Cap One was the subject of a class action law suit because they always reported your card at its limit. If you charged $357 they would report your limit as $357. This hurt every Cap One card holder. They would not change this practice until they lost a court case. Watch your reporting date. If you wanted to improve your score make your payment before and get it credited prior to the accounts reporting date. Let’s say you were at 638 and you needed to be at 640+. See more in part 2 of Mortgage Everett: How is your credit score calculated. You will find more helpful tips on my blog at Everett Mortgage on Line.

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Mortgage Everett: How Is Your Credit Score Calculated Part 2 of 2

Friday, October 30th, 2009

Mortgage Everett: How Is Your Credit Score Calculated

Part 2 of 2

Debt (30%): Continued: If you made your payment before the reporting date that would give you the extra 3 points you would need fro that score. If you have old delinquencies it may not help you to make payments on them. This is because if you don’t pay it off completely the old late payments become current and now your scores get dinged because now it a current late. If you pay off old delinquencies demand a Letter of Deletion. A Letter of Deletion removes that line of bad credit completely from your credit report. Watch for old collections and the statue of limitations. If the debt is more than 7 years old (most debts but not all) it must be removed. A common practice of debt collectors is to try a change that date to when they bought the debt. This is illegal.

Length of Credit History (15%): You might think that opening up a new line of credit would help your score. Watch out it can actually hurt you a great deal. Say you have a 3 year clean history with one account. Today you open up another account at a local department store. You suddenly have a 1.5 year clean history because they will average your history over the total open accounts. That could cause you to drop 10-15 points in one moment.

New Credit (10%): Every time you shop for a better deal, say on a car, your score is dinged 2-3 points. If the dealer sent your deal to several banks then each one dings you 2-3 points. Just stopping at one car dealer can cost you 20-30 points in less than an hour.

Type of Debt (10%): They are looking for a good mix of all three types of debt.

The way the various parts play against each other creates a dynamic and that creates your scores. It is a complex system that can be used to improve your scores but I suggest you hire a good professional to do that. I have several professionals that I refer my clients to. Remember that the FHA mortgage is not score driven but the better your score the better chance you have of getting a loan. You will find more helpful tips on my blog at Everett Mortgage on Line.

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Homes for sale Everett: What is the best way to buy a home today

Monday, October 26th, 2009

Homes for sale Everett: What is the best way to buy a home today

In the “old” days a home buyer was required to have 20% for a down payment. Then in the 1950’s along came mortgage insurance offered by a company called MGIC. They pioneered the MI industry. If you had less than 20% down they offered a kind on mortgage insurance to insure the lender that if you defaulted the lenders loss was covered. The way it worked was simple. The less you put down the higher the insurance premium

charged. The buyer was required to keep certain ratios to qualify. This meant the buyer bought less of a home because part of the monthly payment was for MI. This was pure gold for the American dream. It allowed for the present liquidity in the real estate market. Without MI selling a home would take far longer because there would be far fewer buyers.

Fast forward to today. If you are a veteran you qualify for a VA mortgage. The VA mortgage is the only true ZERO down loan available today.

If you are not a veteran the next best way is an FHA mortgage. The FHA mortgage requires a minimum of 3.5% down. Currently the First Time Home Buyer Credit is 10% of the purchase price up to $8000. So you can actually buy up to $228,571 and have a ZERO down purchase. But there is a bit of a catch. You have to have the 3.5% first, buy the home and then file for the tax credit. The federal tax form you file is form 5405. The credit is refundable so even if you didn’t pay taxes you can still get the credit. In some states there are various funds where a qualified buyer can get a “loan” for the down payment and then buy. Check with your local mortgage broker to see if you live in a state when that option is available.

Currently the First Time Home Buyer Credit is set to expire after November 30, 2009. Senator Bill Nelson (D) a member of the senate finance committee says the credit will be extended for a limited time. But no extension has reached the floors of either house yet.

Every mortgage loan is very important to me, so I handle each one personally. My background includes extensive knowledge of the real estate market, real estate finance and personal taxation. If you are looking to refinance or purchase real estate please give me a call or email. I will be happy to discuss all options with you. Currently I have access to 70+ lenders. I have access to 4 different credit repair agencies. My goal is to become your lifetime lender. thefhaloanguy@aol.com

Posted in FHA Mortgage, FSBO, Homes for Sale Everett, Real Estate Agents, VA mortgages | No Comments »

Homes for sale Everett: Shadow inventory of homes will delay recovery

Saturday, October 24th, 2009

Homes for sale Everett: Shadow inventory of homes will delay recovery

How will the shadow inventory effect homes for sale in Everett? First let’s define what a shadow inventory is. Shadow inventory is bank owned residential property that is not on the market. This is also called the REO (real estate owned) inventory.

Now some facts:

Zillow says the up to 31% of current home owners would sell if the market price came back. If all these homes were placed on the market right now they would depress the market prices all over the nation.

The Wall Street Journal and Bank of America say there are between 3-4 million homes held as REO property right now. With foreclosures up 12% over last year but inventories in the top 28 markets in America are down. Nobody really knows why.

It is estimated that 60,000 to 65,000 Option Adjustable Rate Mortgages will be coming due every month for the next 2 years. The Option ARMs are loans where the borrower can pay less that the full payment. Almost all of these homes will be upside down in equity. That means they will owe more than the home is worth.

Now for my speculation: What if the banks have used TARP money to avoid puting the REO inventory on the market? By putting the REO inventory on the market the bank must recognize the loss. It would depress the market for a while but in a little time the market would adjust and recover. I think many banks have used TARP money to pay bonuses and salaries and avoid painful loss recognition. Japan just went through 20 years of economic downturn because they woiuld not recognize the losses on the balance sheets of their banks. Recognizing the losses would have meant loss of face. Are the bankers of America doing the same thing but using tax dollars to fund this?

Posted in FSBO, Homes for Sale Everett, Real Estate Agents | No Comments »

Mortgage Everett: How to repair your credit for better rates

Friday, October 23rd, 2009

Mortgage Everett: How to repair your credit for better rates

The FHA mortgage doesn’t go by credit scores, or does it? While HUD does not link an FHA mortgage to your credit scores most lenders will. The reason lenders don’t follow the FHA mortgage rules refer back to the “investor” who will buy the loan. Some simple but effective methods to improve your credit score are as follows. First contact any accounts that you dispute late payments with. Sometimes you can get a late notice removed simply by asking. Next pay down your credit cards and other revolving debt to about 1/3 of the credit limit. You need to have credit and you need to use it. You should have a small balance. The scoring algorithms of the bureaus suggest that a 1/3 balance or less, of your credit limit, maximizes your score. Now you don’t have to pay all of them down but select a strategic few and target those for pay-down. This usually takes less than 30 days. If more repair is needed then do as follows. Challenge letter need to be made for all negative credit entries on your credit report. Send these letters to each bureau with details on why you think the entry was incorrect. The bureau must ask each credit vendor if your challenge is correct. The vendor must respond within 30 days of your inquiry. Repeated challenges can wear out credit vendors. Some will miss the 30 day deadline and others will simply not spend the time to respond. This method will take longer but will result in higher credit scores and a cleaner credit report. Right now applicants for FHA mortgages, make that all mortgages, need to be aware that your credit should be kept as clean as possible.

Posted in FHA Mortgage, Real Estate Agents, VA mortgages | No Comments »

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