Popular Loan Types and Your Buying Power

money-7There are three types of loans (conventional, FHA and VA loans) that are popular in the Tampa Bay Market.  As a realtor, it is important to help the prospective home buyer with a general ideal of what they can afford (AKA their buying power) in lieu of a pre qualification from a lender.

Traditionally, lenders require 20 percent of the home’s purchase price as a down payment.  However, many lenders now offer loans that require less than 20 percent down with some as low as 5 percent on conventional loans. If a 20 percent down payment is not made, lenders usually require the home buyer to purchase private mortgage insurance (PMI) to protect the lender in case the home buyer fails to pay.  There are three primary loans that are seen in the Tampa Bay market, which include conventional, FHA, and VA Loans.

Conventional Loans

loan_application_clip_art_24699Conventional loans are fairly conservative loans and are typically used by the home buyers with higher down payments and better credit.  These loans come in a variety of options (Adjustable and Fixed Rate Mortgages) and terms.

According to Credit.com, conventional loans are slightly more restrictive.  Buyers with a loan-to-value ratio above 90% can ask a seller to pay 3% of the purchase price. If the loan-to-value-ratio is between 75% and 90%, sellers can pay up to 6%. Buyers with a loan-to-value ratio less than 75% can ask sellers to contribute up to 9%. Private mortgage insurance (PMI) is applicable to conventional loans under 80%. PMI can be removed once loan-to-value ratio (LTV) reaches 80%.

Unlike PMI, FHA’s MIP lasts for the life of the loan.  PMI is lower than MIP, which is another advantage of a conventional loan.

FHA Loans

moneyhands_217w_gifLoans backed by FHA are popular because the FICO score requirement of 580 is lower than what is required for conventional mortgages and the down payment can be as low as 3.5%.  The Hillsborough County (Tampa) loan limits is currently $271,050 for a single family home.  This is a very good option for most people with bad credit and/or a small down payment.  Keep in mind that any offer should include seller paid some of the buyers’ prepaids, closing costs, and non-allowables.  FHA rules do allow sellers to give up to 6 percent of the home’s purchase price for closing costs.

FHA Requires a Mortgage Insurance Premium (MIP) as part of your monthly mortgage payment is what makes the reduced down payment on your mortgage possible.  FHA uses these payments to insure your lender against losses if the loan goes to foreclosure, which limits the liability of the lender.  As of January 26, 2015, The MIP is calculates on a base loan amount times (.85% for 30 year term or 0.45% for 15 year term) divided by 12 months.  In addition to MIP, FHA’s Mutual Mortgage Insurance Fund (MMIF) has a rate to 1.75% at the loan closing.  Since these loans are insured for the life of the loan, their interest rate is typically better than conventional loans.  This applies regardless of the amortization term or LTV ratio.  The following is a FHA Loan example:

FHA Loans

Please note that this is an example and parameters could and can change.  I suggest that you contact a mortgage professional for more information.

VA Loans

IMG_4140Almost all active-duty military and veterans qualify for Veterans Affairs mortgages including aany reservists and National Guard members and spouses of military members who died while on active duty or as a result of a service-connected disability.  Unlike FHA loans, VA loans are guaranteed.  There is a funding fee that ranges from 1.25% to 3.3% of the loan amount.  Borrowers can qualify for 100% financing. VA loans allow the seller to pay all of the buyer’s mortgage-related closing costs and up to 4% of the purchase price in concessions, which can cover things like prepaid taxes and insurance and even paying off collections, judgments or leases at closing.  I have sold new homes where the lenders actually paid the buyer at closing.

Thinking of buying or selling real estate?

KW1784102f20KW_thumb.jpgYou should consider using a realtor.  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Lithia (Fishhawk Ranch), and our newest office in Valrico.  My email address is alanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.

Residential Mortgage Process

Mortgage-debtSince there are a lot of real estate transactions involve loans, potential home owners should understand the residential mortgage process.   Although I’m not a mortgage broker/lender, the mortgage process is explained as follows:

  1. Pre-Qualification – “Pre-qualification” occurs before the loan process actually begins, and is usually the first step after initial contact is made.  In a pre-qualification, the lender gathers information about the income and debts of the borrower and makes a financial determination about how much house you may be able to afford.  We also refer to this as buying power.
  2. Application – Getting pre-approved is the next step, and it tends to be much more involved.  Borrowers complete the initial application and supply all of the supporting documentation.
  3. Processing – The loan processer reviews the file and makes sure that all the items that the underwriter will need is included in the file prior to submitting.  This typically includes having the property appraised prior to going to underwriting.  The appraisal should be at or above the sales price.
  4. Underwriting – The underwriter completely analyzes the file and makes a determination of the loan based upon industrial guidelines whether to approve, suspend, or deny the loan.  If the file receives “conditional approval”, the loan officer will contact the borrower and address the underwriter’s issues.
  5. Clearing Conditions – Any additional documentation required by the underwriter are sent to underwriting.  Once this additional documentation is received and reviewed, underwriting issues the “Clear to Close” status.  At this time, the closing ate and time is determined with the closing agent or attorney.
  6. Closing – Once you get the “Clear to Close” from the underwriting department, the closing agent or attorney will get instructions including all fees and documentation to fund the loan.  Once the documents are signed, the documents are sent back to the lender for final approval.  It should be noted that most lenders have a document that states if there are any documents are missing that the borrower complete those documents.

KW1784102f20KWThinking of buying or selling real estate?  You should consider using a realtor.  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Fishhawk Ranch, and our newest office in Valrico.  My email address isalanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.

Real Estate Prices in Perspective in the Tampa Bay Market

BourneHome prices are still very affordable in the Tampa Bay Market.  This is especially true for Spec” (speculation) homes, which are often the best places to get the best deals.  These homes are built by builders without an intended purchaser in mind (Hence the builder is speculating that they will find a builder to buy the home). For example, I have client that just purchased a new 3,210 square foot, five-bedroom, three-bath, three-car garage home for about $260,000 (a reduction of almost $20,000), or $81 per square foot.  This home was purchased with a VA loan, which was 100% financed with a fixed interest rate of 3.75% with a payment of only $1,455 per month (including principal, interest, homeowner’s insurance, property taxes, and CDD fees totaling $262 per month).  The only additionally fee that is not escrowed would be a quarterly HOA of $184.   As of May 2015, the average rent for a two-bedroom apartment is $1,161 per month.  The average apartment rent over the prior 6 months in Tampa has increased by $138 (13.4%).  Although the amount of rent paid for two-bedroom apartment is lower than house payment, the home is considerably larger with three additional bedrooms.  Since this is a new home from a new home builder has some advantages over a buying a presale. The new construction advantages include home warranties, lower building insurance, sales incentives (ranging from upgraded kitchens to bathrooms) and closing costs (most (if not all) of the closing costs are included if the builder’s approved lender is used).

Let’s put price into perspective in today’s real estate market and how it can help you in the long run.  It seems that everything has been increasing in price faster than you are making money.  The following exhibit illustrates the how some key items have increased:

Affordability in Perspective

Item 2008 2013 % Change
New Car $27,958.00 $31,352.00 12%
Gas $2.05 $3.80 85%
Hamburger Meat $3.99 $4.68 17%
Wages $40,523.00 $44,321.00 9%
National Avg. Home Price $238,880.00 $289,500.00 21%
Mortgage Rate 6.03% 3.98% -34%
Monthly P&I Payment $1,200.37 $960.18 -20%
SOURCE:  http://www.thepeoplehistory.com and bankrate.com

 

As you can see in the exhibit above, today’s interest rates are one of the best benefits that we can take advantage of now!!!  If you buy a new home or an updated  presale with a warranty the risk is further reduced for costly repairs and/or remodeling costs.  You can even trade up for the same payment.  So, interest rates matter!!!

Thinking of buying real estate?  You should consider using a realtor.  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Fishhawk Ranch, and our newest office in Valrico.  My email address isalanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.

Closing a New Loan on Home is Going to Be Longer Now!!!

photo 2Do you remember the phrase that “Cash is King”?  Well that is more important than ever now.  That is because you will not necessarily need these new closing disclosure and loan estimate in lieu of the HUD-1 settlement statement and the good faith estimate.  Additionally, an appraisal is not required, but recommended for cash transactions.

The closing disclosure and loan estimate are required to be completed three days prior to closing. If al the parties (i.e. lenders, title agents, buyers and sellers) do not agree with these new forms, a new three (business) day period can kick in and delay the closing.  You have until October 3 to get familiar with the new forms and using the new closing procedures. Although these forms are made to make the closing costs easier to understand, it could delay closing on homes in the future.

On January 1, 2015, the entry barrier for both Certified Residential and General Appraisers increased to a Bachelor’s degree or higher (in any field) from an accredited college or university.  These requirements are effective for real property appraiser credential after January 1, 2015.  When you also include the requirements for both VA and FHA appraisals, the pool of available appraisers is limited.  For example, a VA appraisal is allowed only 10 business days to be completed.  With a limited number of available and qualified appraisers, this could become harder and harder to meet.

Although the adopted regulations are intended to help potential property owners, it is hard to imagine that we are not going to see delays in closings.  Cash is king!!!

Thinking of buying real estate?  You should consider using a realtor.  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Fishhawk Ranch, and our newest office in Valrico.  My email address is alanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.

What to Expect in Getting Home Financing!!!

Mortgage-debtAn extremely common question for many first-time homebuyers to ask is: “How long will it take to buy a home?” Since buying a home is a multi-step process, the answer is “It depends on several factors”:

  • Get preapproved with an experienced lender. This allows the lender a “head start” to getting your financing together. Ideally, you would get approved prior to looking for your dream home to determine your buying power. (i.e. you don’t want to view homes that you cannot afford)
  • Make sure both the buyers and sellers are on the same time table and agree on a closing date.
  • Expect appraisals to take as long as 10 days depending on type of loan. (i.e. appraisers for VA and FHA are not as common as appraisers for conventional loans.)
  • Both VA and FHA loans could require repairs to be completed by the seller that could delay loan approval and a closing. Thus, this does not postpone new home sales.
  • The final step is underwriting. If an underwriter needs additional documents or notices an eligibility problem for a particular loan, the closing date could change.

It is very difficult to predict how long the purchase process will take. Here is a general outline for what to expect by the most popular loan types in the Tampa Bay market:

  • Cash transactions can close as fast as two weeks.
  • Conventional loans typically can close in 30 days.
  • Most VA loans close in 30 to 45 days. I have closed VA loans as short as two weeks on new construction.
  • The process of an FHA loan can take as short as 10 days, and typically not much more than 30 days.

Here is what you can do:

  • Get preapproved (very important)
  • Work with an experienced lender that deals
  • Choose a good agent to tell you what to expect.
  • Select a home in good condition to limit the time to get your loan.  New homes can close faster than resales for a variety of reasons outlined above.

Thinking of buying a new home?  You should consider using a realtor.  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Fishhawk Ranch, and our newest office in Valrico.  My email address isalanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.

FHA Loans and Appraisals

Lets talk about one of the most important segments of the residential loan industry, a FHA loan.IMG_0779  What does FHA acronym stand for?  FHA stands for Federal Housing Administration. This was an agency that was created in 1934 to provide mortgage insurance to lenders. FHA does not originate or purchase loans rather it merely insures the loan against loss to the originating lender.  In 1965, the FHA became part of HUD. Today, FHA is a government-run residential mortgage insurance program, which is administered by HUD. HUD is an acronym that stands for the U.S. Department of Housing and Urban Development, which is a cabinet-level agency within the United States government. Its secretary is appointed by the President. HUD is the entity that oversees the FHA mortgage insurance program as well as being responsible for overseeing the nation’s public housing programs, urban renewal programs, and enforcing fair housing laws.

FHA’s purpose is to foster the availability of long-term, stable financing for houses and toGranada II Kitchen improve the housing stock of the nation. In order for an existing home to be eligible FHA-insured loan, it was required to meet a set of minimum standards for health and safety, called Minimum Property Requirements (MPRs).  Between 1996 and 2007, FHA insured loans became an increasingly smaller part of overall loan originations.  Private insurers and investors began offering programs which did not require sellers to make cosmetic repairs to properties to meet MPRs.  As a result, as of January 1, 2006, FHA revamped a portion of its property underwriting standards and appraisal protocols. These changes were meant to focus the appraiser’s and underwriter’s attention away from minor property defects and on to major problems, which may affect a property’s ability to serve as security for a long-term mortgage loan.

In 2007, as the subprime “mortgage meltdown” spread across financial markets and borrowers were finding themselves in increasing financial distress.  Properties were suddenly upside down with their loan balance higher than the appraised value.  Increasingly FHA was called upon to fill the breach as residential credit markets faced overwhelming challenges.  In April of 2009 (HUD) announced revised FHA loan limits, based on the American Recovery and Reinvestment Act of 2009 (ARRA).  As a result, FHA has captured 80% or more of the mortgage market due to easier to qualify for than conventional loans.  Thus, the FHA loan program has done its job and helped in the recovery.  However, the costs to obtain these loans has gone up.

Recent Changes for FHA Loans

With the recent increases in demand for FHA-backed mortgages and according to Mortgagee Letter 2013-04 issued by the HUD (Housing and Urban Development), consumers can expect the MIP to increase as well as the requirement to keep the insurance during the life of the loan.  Beginning on April 1, 2013, most FHA-backed mortgages will be subject to an MIP (Mortgage Insurance Premium) increase of 10 basis points annually, or 0.10 percentage points. The increase applies to all loan terms.  The Federal Housing Administration is also reversing its policy which allows FHA-backed homeowners to cancel mortgage insurance premiums once the outstanding principal balance of a FHA loan reaches 78 percent of the original balance.  Going forward, the FHA will disallow the removal of MIP throughout the life of a loan, if the loan’s starting loan balance is higher than 90% of its appraised value.

Qualifying for a FHA Loan

FHA loans are the easiest type of real estate mortgage loan to qualify for.  The FHA loan requirement guidelines for loan qualification are the most flexible of all mortgage loans that require less than 5% down payment (only 3.5%).

Some Basic FHA loan requirements include the following:

      • Two Years of steady employment, preferably with same employer.
      • Last two years Income should be the same or increasing.
      • Credit report should typically have less than two thirty-day lates in last two years with a minimum credit score of 620 or higher.
      • Bankruptcy’s must be at least two years old, with perfect credit since discharge.
      • Foreclosure’s must be at least three years old, with perfect credit since.
      • Your new mortgage payment should be approximately 30% of your gross (before taxes) income.

Please note that these criteria are subject to change and have been provided as a benchmark.  If you are interested in purchasing or refinancing your home please contact a lender for more information.

FHA Appraisals

As part of the FHA appraisal process, the appraisal provides an examination of the property for any visible, obvious and/or apparent deficiencies that may affect the livability of that property in terms of basic needs, health and safety of the property’s occupants. – HOC Reference Guide, page 1-01. This is not considered to be the equivalent of a home inspection.  To an uninformed buyer and/or seller, this FHA requirement that an appraiser must operate certain systems in the home (plumbing, electrical, HVAC) and do a visual inspection for compliance with Minimum Property Requirements (MPRs) and Minimum Property Standards (MPSs) seems very similar to what a licensed home inspector does can be misleading.

During the inspection, the appraiser will note if there are any cosmetic or required repairs.  Examples include the following:

  • Cosmetic repairs are not required (i.e. Worn floor finishes or carpeting, holes in screens, rotten or worn out countertops, etc.).
  • Required repairs are to correct deficiencies or defects which affect health and Safety, Security, and Soundness (i.e. Leaking or worn out roofs, structural defects including excessive settlement,defective paint on houses built prior to 1978, drainage problems, etc.).

One of the responsibilities of an appraiser is to report if there is a public or community sewage system available.  If either is available, the lender may require hookup to the public or community sewage system.  Connection may be required when it is feasible to connect to the public or community sewage and the lender determines it is reasonable to do so.  To be reasonable, the benchmark employed is the same as the benchmark for the hookup to a public water system.  The cost to hookup should be 3% or less of the estimate of the subject’s value to be considered reasonable.

If you are interested in buying a new home or an existing home, please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511) and I can help you find a new home in the Tampa Bay Area.  My email address is alanlane66@gmail.com or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for homes on my website at this link.

Major Appraisal Challenges to Getting a Residential Home Loan

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English: An icon from the Crystal icon theme. Nederlands: Een icoontje van het Crystal icon thema (Photo credit: Wikipedia)

As a real estate agent, I constantly hear the phrase that ”the property did not appraise”.  What does that mean?  If you are buying a home, you are probably going to get a loan to purchase the property.  Lenders will loan on the lesser of the appraised value or purchase price.  Ideally, your home appraises for at least the amount of your loan, needs no repairs and closes without any unnecessary delays.  However, there could be some potential bumps in the road to purchasing your new home.  If repairs are necessary or if your home doesn’t appraise for at least the purchase price, you have some decisions to make. If your home doesn’t appraise for at least the purchase price, a buyer will have several options:

  1. A buyer can ask seller to lower the purchase price. A buyer lets the seller know the appraisal value came in below the contract price and asks the seller to lower the contract price to equal the appraisal value.
  2. A buyer could walk away from the deal.  Sometimes the difference between the contract price and appraised value are so great that the buyer and seller can not agree that a buyer should just walk away from the deal.  Although the buyer would be out the cost of the appraisal, the buyer will get there earnest money back since the contract is contingent on obtaining a loan.
  3. A buyer could make up the difference in cash.  If a buyer really wants the property, they can also choose to make up the difference between the appraisal value and the loan value in cash.

Both FHA and VA loans require certain items to be repaired as outlined in their respective guidelines.  The appraisal will contain a list of mandatory repairs and estimated repair costs.  The main factors that can stop or delay closing on a FHA loan by an appraiser is whether the property is on septic and well rather than public utilities, the remaining life of the roof, and exposed wiring.  For example, there is the additional cost and time to get a water test as well as estimating the cost to connect to public or community water/sewage disposal system.  If repairs are necessary, a buyer will have three options:

  1. A buyer can ask the seller to make the repairs.  If they are minor repairs, most sellers will make the corrections.  However, major repairs could require some negotiations.
  2. A buyer could walk away from the deal.  Sometimes the repair costs are so high that a buyer should just walk away from the deal.  Although the buyer would be out the cost of the appraisal, the buyer will get there earnest money back since the contract is contingent on obtaining a loan.
  3. A buyer could complete the repairs by themself.  Sellers may refuse to do any repairs, even though they know that loan will not be approved and a sale will be lost. In this situation, buyers sometimes volunteer to handle the repairs themselves. I would not suggest making repairs on property that you do not own.  What happens if the property does not close?

If you are interested in buying a new home or any other home (new or existing), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511) and I can help you find a new home in the Tampa Bay Area.  My email address is alanlane66@gmail.com or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for homes on my website at this link.