Come on 7’s! Daddy Needs a New Roof!

Here’s an excerpt from one of my favorite movies, A Bronx Tale. Please follow closely:

Sonny: Get this over with, Mush.

Mush: Come on, dice. Baby needs a new pair of shoes. Come on, seven!

Mush: Come on! Come on, dice!

Sonny: I don’t even have to look.

(Spectator) And seven!

Mush: Craps! I’m out!

Sonny: Get him out of here! Man never hit a number in his life!

As we all have been following lately, rates have been pretty damn good. I mean REALLY DAMN GOOD. That was…until a week or so ago.

I was working with one of my clients and highly advised him to lock in his rate at 4.875% on a 30 Year Fixed, however he decided to float instead of paying a “little” bit more for an extra 15 days. Why? Only he knows.

He is now at a 5.75%. (crickets chirping)

Ladies and Gentlemen- DO NOT END UP LIKE EDDIE MUSH (featured above) and crap out in this market!!! I cannot stress to you enough how important it is to secure a good rate in when you see it. I am coming across several people daily that REALISTICALLY expected rates to go down to the high 3’s because the media puts their dirty little paws on it, and in the end, they lose out on something great.

Would you listen to Al Roker talking to you about mortgage rates or me about weather? I really hope not.

The loan officers that are still here (you can tell who the seasoned ones are) are here for a reason. We have flourished through the good, withstood the bad, study the market, subscribe to various sources of mortgage news, and have a pretty good grasp on what’s going on.

Many feel that when the loan officer says “Mrs. Jones, you need to lock in,” it is mostly viewed as a sales pitch to get your commitment rather than advice, and many clients back off.

I mean this is normal. I can understand it and would probably do the same.

Do this. Next time your loan officer does this, ask them “Why should I secure this rate Mr. Mortgage? And don’t tell me rates are going to go up. Explain WHY” and see what they say. If studdering occurs, move on to the next mortgage professional. If they can advise you with detailed information, they’re a keeper!

In the end, it is only YOU that will win…or lose.

Tommy’s 2 cents

DON’T BE GREEDY.

Picking the Right Lender

So, you’ve decided to buy a house?

GREAT DECISION, especially now since rates are super low and you can walk into plenty properties with some decent equity.

Ok, step 1 complete.

Next step, picking the right lender.

I’ve written several articles on this previously, but I will summarize countless hours of explanation into ONE sentence:

YOU WILL CHOOSE WHOEVER YOU FEEL MOST COMFORTABLE WITH.

It’s not rocket science. To some consumers,  rates and fees are absolutely everything, and that is OK.

To others, discussing their loan parameters and figuring out WHY they should go on a 15 year mortgage vs. a 30 year makes more sense- a financial plan if you will. Ask most people why they went on the loan program that they did, and see what their response is.

Everyone is different. Remember, you are the one hiring the loan officer to do your loan. The questions that you need to ask yourself are:

1. “Why am I hiring this person?”
2. “What has he/she done for me so far?”
3. “What do you expect from him/her, and vice versa?”
4. “Has the loan officer asked what’s important to ME during the loan?”

Tommy’s 2 Cents:

Would you pay a CPA double what another CPA would charge if they saved you an additional $5,000 off your taxes?

Would you have a fresh-out-of-med school perform heart surgery on you to save a few thousand on the costs?

Would you hire ME or Johnny Cochran to represent you in a criminal trial?

Get the point?

In any profession, what you ultimately pay more for is knowledge.

Should You Use Your $8,000 Tax Credit as Your Down Payment?

So there has been a lot of rumors regarding the $8000 first time home buyer tax credit and that it can be used as a down payment for a new home with an FHA loan.

At first, I thought it was just another “mortgage scam”. Trust you me, the real mortgage industry always leaves room for the next “million-dollar-idea”. If you pay close attention, you may even end up seeing your next door neighbor on the 6 o’clock news getting caught for selling “ARMS” from the back of his van in a dark alley.

After doing a little bit of research to see the legitimacy of this rumor, I ended up finding the official HUD Mortgagee Letter 2009-15.

Who Can Offer It

Let’s begin with who can offer this “loan” on a loan. (Is that a conundrum?)

According the letter, Federal, state, local governmental agencies, non-profit governmental subsidiaries, and FHA-Approved nonprofits will be able to offer this to home buyers.

How It Works?

Essentially, this is a bridge loan. You are borrowing this money for a short amount of time until you get your tax credit, and then it is paid back to these agencies.

What happens is you are taking out a second lien on your home, and that amount CANNOT be more than:

Down Payment + Closing Costs + Pre-Paid Expenses

Here is a list of some more facts on how this works:

1.) You cannot get any cash back at closing.
2.) You will have a deadline to pay this money back, and if you do not, principal and interest will begin automatically. (What a concept!)
3.) If payments are required, it will be calculated as a monthly liability when qualifying for the loan.
4.) If payments are deferred, it must be for at least 36 months and will not be used against you when qualifying.

I cannot stress to you enough -BE VERY CAUTIOUS with this type of transaction. It leaves so much room for deception, and if you end up in the wrong hands, you may kiss your $8k tax credit goodbye very fast!

While it may bring an influx of new potential buyers to Realtors and open a lot of doors to potential buyers, it is a double-edged sword and I do not particularly agree with it. In my opinion, it can do more bad than good and is basically bringing back “100% financing” and that is part of what has caused the “Mortgage Meltdown”.

I would suggest stopping and thinking as to why many down-payment assistance programs went bye-bye towards the end of 2008. It was simply because more buyers defaulted on those types of loans. The LAST THING we need is the Federal Housing Administration (FHA) getting into financial issues.

Tommy’s 2 Cents:

Use it IF you absolutely HAVE to. The $8,000 is yours one way or another.

Identity-of-Interest Transaction Down Payments

An Identity-of-Interest transaction is where a sales transaction is made between parties with family/business relationships.

To break it down very simply, and this is USUALLY always the case, when a family member sells to ANOTHER family member, FHA looks at that as an Identity-of-Interest Transaction.

I get at least 1-2 calls per month with this scenario, and want to post it on my mortgage blog to educate YOU, the consumer.

So even though FHA has a minimum down payment requirement of 3.5%, in THIS case, you would have to put down 15% percent.

Here is ONE of the exceptions to this rule:

1. The family member has rented the property for at least 6 months predating the contract, in which case a rental agreement will be needed.

If you are in this type of  situation and do not have the 15% to put down, feel free to contact me for more info and some other tips that may help you out!

Delinquent Federal Debts

When doing an FHA Loan, if you are delinquent, as revealed by any public records or HUD’s Credit Alert Interactive Voice Response System (CAIVRS), on any federal debt (e.g. VA-guaranteed mortgage, Title 1 loan, Federal Student Loan, SBA Loan, delinquent federal taxes) or you have a lien, including taxes, placed on your property for a debt owed to the U.S., you are NOT ELIGIBLE until this account is paid, brought current, otherwise satisfied, or a satisfactory repayment plan is made between you and the federal agency owed and is verified in writing.

Whew…that was a mouthful!

What Happened? You Told Me I Was Approved!

Just the other week, I had an associate tell me that he felt like jumping off a bridge!

“Why the leap of faith, ” I ask.

After 10 minutes of rambling on how he spent 3+ months working on this couple that finally saved up enough money to buy their first home and at the VERY end, had the financing entirely fall apart, he finally came clean and said, “Tommy, I didn’t look at the tax returns. I screwed up bad.”

You bet these people’s house you didn’t, my friend!!!

For all of you “soon-to-be-buyers”, you need to understand how your income is magically deciphered when looked at by mortgage underwriters. It’s not rocket science, but did you know that your Adjusted Gross Income (AGI) can quickly change if not accounted for properly?

Say you are a W-2 employee with a base salary of $65,000 a year. Well to the average mortgage guy, they take that figure, divide by 52 (weeks in year), and multiply by 4 (weeks in month) to come up with a gross monthly income ($5,000) for you to qualify off of.

Bingo, Bango, you’re APPROVED for that $150k home you fell in love with on Saturday!

Not so fast.

What is that you say? You deducted $5k in gas expenses and $1k in cell phone charges (900 numbers apply), in which your employer did not reimburse you on these business expenses? Well believe it or not, that figure is now SUBTRACTED from your AGI (Adjusted Gross Income-shown on page 1 of your IRS FORM 1040) and now the Loan Approval has to be completely reworked.

If you don’t know what a 1040 is, either you’re reading this in jail or new to the country. Welcome! Dance of Joy time!

Well what the 1040 basically shows is the amount that you made in that calendar year, however, it can be increased or decreased depending on the rest of your tax schedules.

This is where our “Mortgage Wizard” went wrong!

99% of lenders these days will order your tax returns prior to closing, and if anything like this pops up and screws up your original approval, stick a fork in the loan, you’re done with!

So what’s the moral of the story?

2 things:

1. Make sure to give your tax returns (last 2 years) to your loan officer and make sure you reference this article so this doesn’t happen to YOU.
2. If you are planning on buying a house in the near future, don’t deduct as much as you normally do tax time. While it’s a great feeling getting a nice fat check back, it’s an even better feeling owning a home.

Hitting a Home Run with the HomePath Program

When I first read about this program, it struck me as kind of odd and out of place. It actually reminded me of those Sub Prime email blasts that many loan officers used to get. Remember those?

- 100% Financing
- NO Credit Score- OK
- NO Job- OK
- NO Heartbeat – OK!

The first sound I emitted was, “Waa Waa Wee Wah!”

Fannie Mae put into effect a new program last month, and is entirely designed for people that are buying REO’s (Real Estate Owned) from Fannie Mae directly. Simply put, when someone goes into foreclosure, many times the bank will buy back the property and are looking to sell these things as fast as they can because they don’t want their “books to get cooked.”

Couple this with a slow housing market, repeat episodes of “Flip This House”, and a dash of paprika, and you’ve got yourself the HomePath program!

So what’s in it for you? Let’s take a look.

For starters, there is NO appraisal or Mortgage Insurance is needed on these types of transactions which can definitely save you some money up front, and thousands throughout the life of the loan. How sweet is that?!

So far, so good…really good! Listen, it gets better…

The minimum down payment is only 3% which can allow several more borrowers such as yourself to get into these properties. Also, if you don’t have enough money for closing costs, HomePath will allow seller contributions up to a full 6% if needed.

Another really neat thing is that there are easier approvals on this program. What I mean by that is even though you have to meet the standard guidelines (620 score, document income, etc), approval types are usually broken up into 3-4 categories. These days, 99% of lenders are accepting only 1; with HomePath, they are accepting ALL types. Bada Bing!

Now before I get blasted in 2011 for promoting this, for the record, I hope this program stays under close watch in the beginning stages because lenders could quickly fall into the hole they are slowly digging themselves out of. Remember, loosey goosey loan programs are what got us in this mess in the first place!

If you’re interested in looking more into this, contact us and I would be happy to go over the HomePath program with you. Also, make sure and do your own due diligence with some Full-Time Realtors that specialize on REO’s.

Happy Hunting!

J.P. Morgan and Citigroup Pause Foreclosures

On Friday, Citigroup and J.P. Morgan Chase said that they would temporarily hit the “Pause Button” on foreclosures.

Out of the $350 billion that is left, $50 billion of the last year’s bailout plan is going to be used to buy some time for homeowners that are currently having trouble paying their mortgage payments. This is definitely good news, because even I am guilty of criticizing the disbursement of these funds. It’s kind of like the “Hunt for Osama”. It was hot for the first few months, then everyone forgot about, so I am very glad to see that FINALLY this money is being put to good use.

Personally, I have heard so many clients that are being SCREWED (Escrow money being overcharged, incorrectly calculated, double payments put into effect, no negotiation of terms available, etc) by their current mortgage, its unbelievable!  Mark my words, REGULATION AND PROPER EXECUTION of this will be the ONLY way this is going to work, unlike several false promises that have been given to millions of Americans this past year.

So what Obama plans to do is make each homeowner pass an affordability test. This, to the public’s knowledge so far, is not going to be a complicated thing. As long as the homeowner shows that he/she can make enough money to afford some sort of payment plan with the mortgage company, they should be in good hands.

Barney Frank, House Financial Services Committee chairman, requested that a suspension of activity (moratorium) be set in place until the new plan is finalized in the upcoming weeks, and expects that at least 90% of banks will follow suit to help the housing crisis.

Ready? Set? Change!

It looks like 2009 has started off in a very exhilarating fashion, I’m sure you would agree.

We have our first African American president, Larry Flynt is asking for a $5 billion PORN bailout , Bernie Madoff got caught with his hand in a $15 billion cookie jar, and of course the Steelers won a very “action packed” SuperBowl.

So where does this leave us and what should you expect in ‘09?

Well, for starters, Obama’s proposed $900 billion Stimulus Plan is still being negotiated in Senate, and from the way it looks, it’s going to pass. Many are wanting to know the dynamics of what this plan is, so I wanted to outline a couple of the top points you may be interested in:

1. Instead of $7,500, a $15,000 Tax Credit to First Time Home Buyers. This is still in the works, but looks good on getting approved.

2. Tax relief to those with middle, and low incomes, in order to restore consumer spending and confidence.

3. $1,500+ tax break to car buyers to get them back in the showrooms

4. Specific measures to relieve financial institutions of their troubled assets. (Where did the “The Bailout” money go last year?)

5. Defined tax breaks for businesses, especially those which encourage them to reduce their debt.

Now I slightly recall a $700 billion Wall Street Bailout plan that passed and that did NOT go the way it was supposed to, yet we’re still paying for that tab.

So where you stand on this? Is the US just writing blank checks to solve problems, or is the “Change” we’ve been waiting for?

Very Crazy Week for FHA Mortgage Rates

Rates are up, rates are down… they are even going left and right. What should YOU do?

Freddie Mac VP, Frank Nothaft said that rates were holding steady.

Well Franky my man, I disagree. Yes they may have held steady considering the economic reports that were coming out, but they DEFINITELY were moving. Maybe he was talking about the Fed Funds rate that stayed 0-.25%.

2 days ago, FHA rates were at 5%, now they are creeping up to 5.75%+.

How is that steady?

Yesterday the Fed bought around $16.8 billion in mortgage backed securities. You would think this would help mortgage rates, but completely the opposite. At one point yesterday, MBS was down about 98 basis points.

Hopefully everyone has been taking advantage of the rates while they were as low as they were, but now I’m predicting a slow, but steady increase within the next 3 months. Now is the best time to have a mortgage consultant watching the market and letting you know whats going on. One bad decision can cost YOU thousands in the long run.