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Mortgage Q&A For Home Buyers

Posted by Leslie Eskildsen on Wednesday, November 26th, 2008 at 10:31am.

Are you looking for the straight story on financing a home purchase in today's market? I recently sat down with Todd Burns, a Loan Officer with Prospect Mortgage - The Kyle Group, to get his perspective.

Advice for Home Buyers

Todd, what advice would you give to buyers out shopping for homes during the holidays?

It is really a good time to purchase a home. If buyers have been waiting for home prices to drop….they’ve dropped and people are buying. The median price of a California house dropped 40.9% in October to $316,480, but sales climbed 96.7%, the Realtors association reported. The median price of a California condo was off 29% from a year ago, dropping to $292,620. Condo sales increased 41.7%. As a preferred lender for many of the banks selling distressed or foreclosed properties, I am pre-approving multiple offers on REO homes. Often the offers are at or above the listed price. The empirical data and first-hand accounts should tell potential buyers that prices are stabilizing.

When viewing the bank-owned homes or even short sale properties buyers may see properties that are, for lack of a better term, “dumps”. But, just because the property is not “turn-key” with all of the updated features homeowners prefer today, if they like the neighborhood and home they do have tools available. Using an FHA 203K which is a Rehabilitation Loan, a buyer can receive $30,000 for use to upgrade the home and make it their own. They can use the funds to paint, install new carpet or flooring, new kitchen cabinets, upgrade bathrooms, purchase new appliances, repair or replace a roof, and much more.

Financing Over $1 Million

What does the Treasury Department's announcement today mean to home buyers in the higher prices - $1M and over?

There will likely be little movement in this sector generally because there are few investors willing to purchase the higher-priced loans. Those that still offer these loan amounts typically portfolio these loans and do not sell them to the market. The announcement by the Treasury Secretary only applies to home loans that are part of the Fannie Mae/Freddie Mac/Ginnie Mae portfolio. Generally the loan amounts are less than $417,000 but because of the recent stimulus package that increased the loan limits in some counties around the nation, the amount could be higher. On January 1st 2009 the conforming Jumbo loan limit for Orange County, CA, for example, will be $625,500. As long as the loan amount is less than this figure, buyers and homeowners can take advantage of the reduction in rates.

For buyers that are purchasing higher-priced homes there are options, and some good ones. For example, we have a Private Mortgage Banking division that caters to loans that are greater than $1.5 million up to $20 million. The rates are phenomenal.

Lowest Interest Loans

What is the highest loan amount that will get the lowest interest rate?

The best rates will be those less than $417,000 for conforming loans and with loan to value equal to or less than 80%. We wait to see how the new loan limit in January will be impacted by interest rates. FHA/VA loans depend on the county where the property is located. See this link to HUD for more information. If you stay under these limits, you should receive the best rates available.

Down Payment Requirements

Does this announcement have any impact on down payment requirements?

No it does not. Down payment requirements may vary depending on loan type and guidelines dictated by the mortgage insurance companies. Today, mortgage insurance companies have reduced the mortgage insurance available in certain declining markets, and a buyer should be prepared to contribute 10% down toward the purchase of a home for a conforming loan. If, however, a buyer was to use an FHA loan to purchase a property a buyer can put as little as 3% down and still receive the lower interest rates. There are other factors that are considered including FICO/Credit score which may impact the rate offered.

What are current down payment requirements or what guidelines can you offer today's home buyers?

One can still receive 100% financing on a purchase by using various down payment assistance programs offered by state and local governments. An employer, church, or family member can contribute towards the down payment. There are many options to choose from and only a lender who is proficient with the available products should be consulted with these scenarios.

Four Things Every Buyer Should Have Ready

What are the three or four things every home buyer must have to be ready to buy in today's market?

1. Get pre-approved - Today more than ever it is important to understand the loan program, costs associated with a purchase, and the process. Loans are not as easy as they were in the past. Be prepared to fully document your income and have a monthly budget in mind so that the loan officer can tailor the loan to meet your goals. 2. Good Credit – make sure your credit score is at least 580 for FHA loans, and above 680 for conventional.

3. Your finances should available and in order. Banks may require 2 years tax returns, W-2 Statements, payroll statements, all bank statements, 401k and other retirement account statements which will be included in the loan package.

4. Seasoned funds – meaning banks cannot use cash that is kept in a safe as a liquid asset. It must be in banking account for a minimum amount of time. Often this is 60 days so that 2 statements reflect the balance. Be prepared to source and document any funds that may be deposited into your bank accounts or to be used to purchase a home.

Year End Strategies

What is likely to change in the new year? Is there any advantage to home buyers to buy before the end of the year?

There may be tax advantages for closing escrow before year end. Consult your tax professional.

I predict a significant change in the foreclosure market. Already banks are trying to modify loans by placing foreclosures on hold for a period of 90 days and using the lifelines offered by the FHA to help homeowners stay in their homes. This means the inventory of distressed properties should be reduced further stabilizing property values. Expect a rise in short sales for homeowners who cannot meet the guidelines for a loan modification by their lender. Short sales are cumbersome and often difficult to get accepted, but banks will be more inclined to limit their losses through a short sale process rather than foreclosure. The process should become more streamlined in the coming year.

Contact Todd

If you have questions of your own, you can contact Todd directly:

Todd Burns

Loan Officer, Prospect Mortgage - The Kyle Group

949-932-4557 Direct

949-547-3557 cell

http://www.tburns.myprospectmortgage.com/