Archive for Financing
Closing Costs Clarified
How much closing costs should a home buyer expect to pay? Closing costs average 5% of a home’s purchase price.
Closing Cost Estimates
Looking for the exact amount? Lenders are required to disclose all closing costs within three days of when a buyer applies for a mortgage. The forms used to list closing costs have been standardized and simplified. The new Good Faith Estimate (GFE), circa January 2010, helps buyers shop and compare costs from different lenders. Lenders are held accountable to ensure that all costs, even title fees, on the Good Faith Estate match the final numbers on the Settlement Statement (HUD-1).
Who Pays What
While Tampa area home sellers pay for the owner’s title policy, commissions and state doc stamps on the deed, buyers are responsible for: lender fees, the lender’s title policy, doc stamps on the note, home insurance, pre-paid taxes, and prorated CDD / HOA fees. See this RIS Media report on new HUD & RESPA regulations.
Buyer Costs Will Increase
If the amount of cash required to close is an issue, potential home buyers may want to act now. Tampa home sellers can still pay up to 6% of a buyer’s closing costs, but those days are numbered. New FHA guidelines will be phased in over the coming months that will reduce seller contributions to 3% most likely, and will increase the financed Mortgage Insurance Premium (MIP) by a half percent. We expect to see loan costs increase in the coming months as: lenders require larger down-payments (6% up from 3.5%), tax credits expire, credit requirements tighten, and interest rates increase from historic lows.
To take advantage of this historic buying opportunity, contact Team Bohannon at Coldwell Banker today at (813) 979-4963.
Why Buy Now? 2010 May Bring Higher Overall Costs
Should you wait and see if home values in the Tampa Bay area drop further before buying? Everyone wants to pay the lowest possible price. The sales price, however, is not the only factor that determines monthly payment if you will be financing the purchase. A 1% increase in mortgage interest rates would result in a higher monthly payment than an additional 10% drop in value.
The financing cost associated with buying a home should increase as the federal government begins easing off stopgap measures to boost the housing market over the next few months. What factors will cause the increase?
- Tax Credits for First-Time Home-buyers & Move-Up Buyers are set to expire
- Upfront Mortgage Insurance Premiums for FHA Loans will go up a 1/2 point
- Credit Requirements for FHA Loans have been tightened
- Down Payment requirements for FHA Loans might increase to 6% (up from 3.5%)
- Interest Rates are expected to increase from historic lows
- Seller closing cost contribution limits may decrease from 6% to 3%.
Government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac have been the primary buyers of mortgage backed securities. The $11 trillion U.S. residential mortgage market has been dominated by GSEs since private investors exited the market in 2007. The Federal Reserve is set end its program of purchasing mortgage-backed securities by March 31. Such a move would likely cause mortgage rates to climb from record lows because private investors would demand higher returns to purchase residential mortgages. When combined with the above factors, we see cash-to-close and loan costs going up.
Consolidation in the credit markets may also be a factor. The concentration of power in the mega-banks, backed the Federal government guarantees, is limiting consumer choice. The remaining mega-banks can afford to enforce tighter requirements and charge higher rates since since much of their competition has been eliminated. Disintermediation has not been our friend.
To learn more about the Tampa real estate market and factors impacting home buying, contact Dale Bohannon at (813) 979-4963.
Don’t Get Soaked By Flood Insurance
We almost had a 300K short sale transaction fall apart at the last moment over flood insurance. The current owner was paying $1600 per year and the quote for the buyer’s insurance was $6000 per year because this older home was located in a Pinellas County flood zone that had recently changed. The high cost would have impacted the buyer’s loan ratios and willingness to buy. Flood insurance is not assumable if less than 6 months remain on the policy. The heroic efforts of everyone involved resolved the situation when we discovered the home was grandfathered into a different classification because the building permit was issued before the flood zones changed.
Why You Need Flood Insurance
Anywhere it rains, it can flood. While coastal areas have a higher risk of flooding, inland areas may also have a topography that is prone to flooding. Lenders insist on flood insurance if a property is located within certain flood zones to protect their collateral – the home. Most newer subdivision must be built at elevations above sea level and do not require flood insurance policies.
Elevation Certificates
If your lender and/or insurance agent claim that your home is in a flood zone, we may be able to obtain a Federal Emergency Management Agency (FEMA) elevation certificate, or flood certification, to verify that a home is above sea level and therefore may not need flood insurance. FEMA Flood Elevation Certificates are done by licensed Florida engineers in order to determine how much Flood Insurance a homeowner will have need. Sometimes flood zone classifications are incorrect. Even if a home in located within a flood zone, it may be grandfathered into a different classification. You might also perform a flood risk analysis to see how your home compares to FEMA’s risk assessment.
Flood Zone Maps
Flood-hazard maps have been created to show different degrees of risk for each area. FEMA updates digital flood maps and revises flood zones to offer up-to-date risk assessments. Click these links for Hillsborough County Flood Hazard Maps, Pasco County Flood Zones or general information from the Southwest Florida Water Management District about the watershed and the floodplain. See Flood Insurance Guide and consult flood insurance providers for more information.
If you are looking for an agent who has been in the trenches dealing with these issues for years, look no further. We have an experienced team, a repeatable contract-to-close process and an automated transaction management system to provide the peace of mind you deserve. Contact Doug or Dale Bohannon at (813) 979-4963.
Low Down Payment & First Time Homebuyer Loans
Looking to buy Tampa real estate with little or no money down? There are affordable home loans available for first-time home buyers looking to realize the dream of homeownership. If you are concerned about employment history, income qualifications, credit score or down payment assistance (gifts or grants), there are programs available today.
Government Sponsored Loan Programs
The obvious candidates are U.S. Government sponsored loan programs from FHA, VA and USDA. Some of these programs allow purchasing a home with no money down, while others allow seller credits toward closing costs.
Down Payment Assistance
Federal, state, city and county grant programs can also offer down payment assistance that makes the critical difference. The Florida Homebuyer Opportunity Program (FL HOP), Hillsborough County’s First Time Home Buyer Program and Pasco County’s Hombuyer Assistance Program are other places we can turn. See How to Buy a Home With a Low Down Payment. Not every lender has up-to-date information about the ever changing range of options that may help you move in to the perfect home.
Team Bohannon uses a systematic Lender Evaluation System to help you make better decisions and avoid costly mortgage surprises. To find the best loan, contact Doug & Dale Bohannon at Coldwell Banker today (813) 979-4963..
Appraisal Valuation Issues Persist
Many home sales have fallen apart due to home valuation issues. Rapidly changing home prices and evolving regulations have impacted appraisals. We have seen buyers wait 6 months for a successful short sale approval only to have their hopes dashed by a low appraisal from their own lender. We have seen sellers move out of their homes and commit to other properties only to see the sale fall apart due to a low appraisal. Don’t let a questionable appraisal derail the dreams of your family.
Why Appraisals Are Important
Home loans are contingent upon appraisals. Lenders need to determine the underlying value of a home before agreeing to make a loan. The purpose of a Residential Appraisal Report is to develop a credible opinion of the value of the improved subject property as defined by the Uniform Standards of Professional Appraisal Practice. The report contains supporting data, a final opinion of value, photographs and comments on market conditions.
A Conservative Approach
The melt-down in the mortgage markets caused many lenders to appoint Chief Risk Officers and take measures to limit the overall risk inherent in their loan portfolios. As lenders analyze their risk profiles, they may be hesitant to fund another Florida loan unless the appraisal valuation is very conservative. Once the appraisal is complete, it may need to go through underwriting, a lender’s appraisal review committee, and the PMI company for approval. A bank’s appraisal standards may penalize the valuation by 10% in areas with soft or declining market conditions. They may request two appraisals on a subject property, or may require buyers put between 10-20% down.
The Impact of HVCC
The Tampa Bay area has many excellent appraisers who face a rapidly changing business landscape. The HVCC (home value code of conduct) is a Fannie Mae and Freddie Mac requirement that prohibits a lender from choosing the appraiser – either directly or indirectly. The rule is designed to shield appraisers from any pressure to hit the values needed for the sales contract. Lenders now place orders for appraisals with Appraisal Management Companies who retain a sizable percentage of the appraisal fee for overhead. The actual appraisers may receive less than half of the appraisal fees they collected in the past. As a result, many experienced appraisers have left the business. We have seen the proliferation of “appraisal mills” who send appraisers from as far away as Lakeland who lack knowledge of local builders and neighborhoods. Appraisers who commit to lower fees and faster turn around times are winning more business, but they are more likely to produce problem reports. While there are many qualified and excellent appraisers in the area, this new middle-man has caused home valuation to be more of a wild-card. While the US Senate is discussing changing HVCC regulations (see H.R.4173, the Wall Street Reform and Consumer Protection Act of 2009), the law remains in effect. Once an home has been appraised, challenging the valuation has become nearly impossible.
FHA Appraisals
As the average sales price of Tampa Bay homes has fallen, a greater percentage of homes now qualify for FHA loans. Appraisals on FHA loans pose a significant risk for a homeowner, as an FHA appraisal will set the value of the home for anyone else using an FHA loan for 6 months. Appraisals using the Fannie Mae 1004 form and Freddie Mac 70 form, also known as the Uniform Residential Appraisal Report (URAR), are stored in a database for 6 months and must be used for any buyers during that period. New FHA regulations similar to HVCC have been implemented by the government-sponsored enterprises (GSEs) to ensure appraiser independence. The Department of Housing and Urban Development (HUD) has implemented ML-28, whereby FHA-approved lenders are prohibited from accepting reports prepared by appraisers who are selected, retained or compensated in any manner by a lender or mortgage broker. An appraiser will contact the listing agent for access to the home and a copy of the contract. While Realtors should not attempt to apply pressure, we can provide background information about the neighborhood, builders and comparable sales. Agents can communicate knowledge about the condition or circumstances of recent sales that may impact values. We can suggest near-by homes or neighborhoods with similar characteristics. Realtors can also convey information about pending sales, active listings and the absorption rate. Team Bohannon also details any upgrades to the subject property that help justify the sale price. And finally, we describe the marketing of the property and disclose multiple offer situations. The best practice is to communicate this information the day before the appraisal to allow time for comparable selection, planning and photos before the appraisal.
Realtor’s Role
Experience is a hard teacher. Don’t let your Realtor obtain on-the-job training at your expense. The average Realtor completes less than 4 transactions per year and may lack the experience required to manage the appraisal process. Contact Team Bohannon for an experienced team, a repeatable contract-to-close process, and an automated transaction management system to provide the peace of mind you deserve.
Why Buy Now – The Impact of Waiting
Business Week has an article that makes a case for buying now based on low interest rates. The article discusses the financial impact that interest rates have on the cost of buying and paying off a home. “Every quarter-point change in interest rates is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed.” If you are waiting for Tampa Bay home prices to fall further, click here for the article.
Here is a quick excerpt:
You would like to own a $240,000 home. However, even though home prices have steadied, you may be thinking you can get another $5,000 or $10,000 discount if you wait (never mind the $8,500 or $6,500 tax credit due to run out next spring). Or you may be waiting for the news to tell you the economy is “more stable” and it’s safe to get back in the pool. In exchange for what you may think is prudence, you will risk paying $50,000 more per point in interest rate changes between now and the time you decide you are ready to buy. And you are ignoring the fact that according to the Case-Shiller index, home prices in most regions have been trending back up for the last several months.
If you are someone who is looking to buy or upgrade in the $350,000-to-$800,000 home price range, and many people out there are, then you’re borrowing $300,000 to $600,000. At 7%, the $300,000 loan will cost just under $150,000 more over the lifetime, and the $600,000 loan an additional $300,000, if rates move up just 2% before you pull the trigger.
What I’m trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime. full article.
Home Buyers Beware: Avoid these 12 Unpleasant Mortgage Surprises
Don’t be left at the alter without a loan! The Tampa real estate market is seeing a high percentage of transactions fall apart during the contract process due to financing issues. One thing we have learned over the years holds true: “Promises and personalities do not ensure success, process does”.
To avoid the pitfalls below, Team Bohannon used a Home Buying System to ensure the lender has the processes, performance guarantees, and communication in place to protect against these 12 Unpleasant Mortgage Surprises.
- The loan program you were quoted is no longer available.
- The loan was not locked interest rate floated above your approved rate.
- The Good Faith Estimate doesn’t match the final fees.
- Closing Costs were not estimated based upon local customs.
- Neighborhood CDDs were not figured into closing costs.
- The home does not appraise for the purchase price.
- The appraisal is late.
- The loan isn’t approved on time.
- Unreasonable last minute requests for buyer documentation.
- Underwriters do not approve financing at the last moment.
- Contributions toward closing costs are disallowed at the last moment.
- The company goes out of business during the transaction.
- Key personnel leave the company delaying the approval process.
- The conditional loan commitment was mistaken for a full loan approval.
When a lender examines your credit, they are assuming that your credit score will not drop between initial preapproval and final underwriting. They are also assuming that you will not be making any major purchases such as furniture or cars in between contract and closing.
What steps can you take to avoid these issues? For starters, do not make the mistake of selecting a lender based solely on the interest rate or by passing acquaintance. As part of our value added services, we walk you though qualitative and quantitative comparisons of loan options for your new Tampa Bay home. While we cannot control every company and person involved in the loan approval process, our Home Buying System is designed to pro-actively manage all the variables that could signal trouble.
For the quantitative analysis, our system uses the a Lender Comparison Matrix to analyze the Good Faith Estimates (GFEs) from leading lenders. The LCM provides a detailed costs comparison that can help uncover hidden costs. This organized and systematic process helps remove the guesswork and select the best loan for your overall goals.
For the qualitative analysis, we focus on the track record and business practices of the loan officers and their lending institutions. Low interest rates are great, but can they deliver on time, without surprises, and will they call you back? Is the processor and underwriter based locally, or are you at the mercy of a far off processing center? How much knowledge and experience does that loan officer have? What are the chances the company will still be in business by closing, or the contacts will still be at the company?
Contact Team Bohannon at Coldwell Banker today at (813) 979-4963 for a information on obtaining the best loan.
Fed Says 1 in 3 Loan Applications Denied
Pre-approval is more important than ever for Tampa home buyers. According to a Federal Reserve study, nearly one in three borrowers applying for a loan in 2008 was denied as lenders enforced tight standards to respond to the mortgage crisis. Read the AP article.
Many buyers are denied even though they have a pre-qualification letter, which can lead to expensive last minute surprises before closing. To avoid the wrong loan, or the wrong lender, consult with a Team Bohannon Value-Added Real Estate Consultant. Our goal is to provide you with a systematic process and better information that will lead to selecting the right loan for your personal circumstances.
Many consumers make the mistake of selecting a loan and lender based solely on the interest rate, or by calling an acquaintance in the mortgage business. To make a better decision, we employ a Quantitative Cost Analysis®, a Lender Comparison Worksheet®, and a Qualitative Service Analysis® to evaluate the optimum scenarios. By going way beyond what a traditional Tampa Realtor® would offer, Team Bohannon consultants help navigate a tumultuous sea of choices and deliver a highly differentiated value proposition.
White House Prods Lenders to Move Faster
Frustrated with delays on mortgage modifications, refinancing and short sales? Think that banks are unresponsive? You are not alone. Treasury Secretary (and noted tax dodger) Timothy F. Geithner is pressuring the country’s largest banks to speed implementation of the federal foreclosure prevention program known as Making Home Affordable.
Many Tampa homeowners have applied for mortgage modifications from Bank of America, J.P. Morgan Chase, Wells Fargo and 21 other lender who have signed up for the program which pays lenders to modify mortgages by reducing interest rates or extending the term of the loans. Follow the link for the juicy details http://tinyurl.com/lbdn8t. For information about short sales, foreclosures and modificatons, contact Team Bohannon at Coldwell Banker today.
Accelerate the First Time Home Buyer Tax Credit
If you have not owned a home in 3 years, then you might qualify for the first time home buyer tax credit. While the $8000 tax credit is great, many buyers do not want to wait until next April 15th to recoup the $8000. Our trusted CPA partners may have some solutions for obtaining the $8,000 quicker: after closing, you can amend your 2008 tax return and receive the money in a few weeks. In fact, here are 4 options provided by Amol Nirgudkar, CPA & Managing Partner at Reliance Consulting:
- File an extension for 2008.
Taxpayers who haven’t yet filed their 2008 returns but are buying a home soon can request a six-month extension to October 15. This step would be faster than waiting until next year to claim it on the 2009 tax return. Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit. - File now, amend later.
Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house in the next few months can file their return now and claim the credit later. Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit. - Amend the 2008 tax return.
Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return. - Claim the credit in 2009 rather than 2008.
For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when they file the 2009 tax return rather than claiming it now on the 2008 tax return. This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.
The IRS website stipulates the tax credit:
- Applies to purchases that close after April 8, 2008, and before Dec. 1, 2009.
- Applies to homes used as a taxpayer’s principal residence.
- Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
- Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
The credit is claimed using IRS Form 5405. Here is a link to the Q&A from the IRS wepage on the subject:
http://www.irs.gov/newsroom/article/0,,id=206293,00.html
As always, please verify this information with your trusted tax advisor before taking action. Call Team Bohannon in Tampa Florida to take advantage of low prices, low interest rates and the tax credit today.
