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

 FHA Mortgage, mortgage, Mortgage Everett, Real Estate Agents, VA mortgages  No Responses »
Nov 212009
 

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

I am suggesting three.

  1. 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.
  2. 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.
  3. 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

Twitt
 Posted by JAJohnson at 9:22 am

Everett Homes for Sale: HVCC Finally Under Review

 FHA Mortgage, FSBO, Homes for Sale Everett, Mortgage Everett, Real Estate Agents  No Responses »
Nov 072009
 

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.

Twitt
 Posted by JAJohnson at 8:01 pm

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

 Mortgage Everett, Real Estate Agents, VA mortgages  7 Responses »
Nov 062009
 

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.


As Featured on ArticleCity.com

Twitt
 Posted by JAJohnson at 8:39 am

Is the benefit of the housing tax credit overstated

 FHA Mortgage, FSBO, Homes for Sale Everett, Mortgage Everett, Real Estate Agents, VA mortgages  1 Response »
Nov 042009
 

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.

As Featured on ArticleCity.com

Twitt
 Posted by JAJohnson at 9:35 am

Tax benefit to buying a home with an FHA mortgage

 FHA Mortgage, FSBO, Homes for Sale Everett, Mortgage Everett, Real Estate Agents  2 Responses »
Nov 032009
 

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

Or

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
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Twitt
 Posted by JAJohnson at 7:04 am
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