The Loan Lady Blog

On January 1, 2010, changes went into effect on how the costs of getting a loan are disclosed to consumers.  This revision of the Real Estate Settlement and Procedures Act (RESPA) was done for all the right reasons, but in practice it has not helped to clarify closing costs for home buyers or home owners who refinance.

The intent was to make sure consumers know all the costs in advance of obtaining a loan, and have the ability to compare costs between lenders.

In practice this becomes very difficult.  To begin with, loan officers are required to list every possible fee in the transaction including fees that the seller is paying.  Including the seller-paid fees obviously inflates the total estimate for the buyer.

The loan officer is also supposed to include fees that may be part of the real estate purchase, such as inspection fees.  Normally the loan officer is not involved in the inspections, which the Realtor orders for the client.

If any fee the borrower ends up paying is greater than what is originally disclosed, the loan officer must pay it.  The effect of this is the most loan officers "over-estimate" fees to make sure every possible fee is included, and at a level that is higher than the actual fee.

It does not provide clarity to a consumer to receive a Good Faith Estimate that includes fees paid by the seller, or fees that are over estimated to prevent out of pocket losses by the loan officer.

The intention of the new RESPA rules is good, though.  There are some loan officers who might lure a client in with exceptionally low fees, so that the unfortunate borrower has to come up with unexpected fees at closing.

The RESPA revisions are still new and lenders as well as loan officers are learning what works, what makes sense, and what needs more revision.  When it is finally sorted out in a way that makes sense, and is consistent from lender to lender, it shoudl provide clarity and protection for the consumer.

With or without the RESPA rules, the best thing a consumer can do is to find a trustworthy loan officer to explain all the fees and give an accurate estimate that is consistent through to the end of the transaction.

Have we reached the bottom of the market now with real estate sales moving again and the median home price rising?  Many think so.

I have been busy lately with buyers who have been on the fence, thinking home prices would continue to drop.  They are now working hard to complete their loan approvals and get into contract to purchase a home before any rise in prices or interest rates.  There is also a rush for first-time home buyers to get into contract by April 30 and complete the transaction before June 30 to take advantage of the homebuyer tax credit.

In our area we are seeing multiple offers on homes--particularly the "bargain" properties that are foreclosure sales or distressed property.  Multiple offers lead to higher prices as buyers compete with each other.  It's the basic law of supply and demand.  As demand increases, prices will increase.

Banks may be controlling the flow of properties on the market.  By slowly releasing their foreclosed properties, they keep the supply limited and the demand high.  On one hand, you can look at this as manipulating the market for their own benefit--to gain higher and higher profits as they sell off property.  On the other hand, there have been rumors that banks are planning to dump all their foreclosed properties on the market at once.  This might be a boon to home buyers looking for a bargain, but would have a devastating effect on the recovery process.

Home buyers who have been waiting for a better time to buy should realize that time is here.  Home prices are still good, rates are still low, and first-time buyers can get the tax credit.

Go for it.  Bottom's up now so don't wait any longer!

Good news. The first-time home buyer tax credit has been extended, with an additional tax credit for repeat buyers.

The $8,000 home buyer tax credit for first-time buyers will be extended through April 30 of next year and buyers will have an additional two months, until the end of June, to close. First-time buyers who are in process of making a purchase will no longer need to worry about qualifying for the $8,000 credit if they close after the November 30 deadline. The new legislation increases the income limit for couples with income up to $225,000, a nearly $55,000 increase above the level in existing law.

For the first time, the new legislation makes buyers who already own a home eligible for a credit. Homeowners who are buying a new primary residence would be eligible for a $6,500 tax credit beginning Dec. 1 if they owned their home for five consecutive years in the previous eight. The income caps are $125k for individuals and $225 for couples. Anyone who collects the tax credit but sells the home within three years of buying it must return the refund. The legislation limits the eligibility for the existing homeowner credit to homes worth $800,000 or less. 

Very few people know about one of the best loan programs available today.  It is the USDA program for rural housing.  This loan program offers 100% financing with no monthly mortgage insurance.  There is a one time guarantee fee of 2% of the purchase price that can be financed with the loan, resulting in 102% financing.

The program is designed to stimulate growth and improve housing quality in rural areas, but many of the eligible areas are not what most people would consider rural.

Other features of the loan include no first time home buyer requirement, no reserve requirement, no minimum credit requirement (although a score of at least 620 is recommended), and no minimum buyer contribution.  There are maximum income limits.

To find out more about this program, check if your income qualifies, and determine if a specific property address is eligible, go to:  http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do  or contact me for an appointment.

Energy Efficient Mortgages (EEM) have not received much attention but they are available to home buyers who use FHA financing.  The program allows buyers to add the cost of energy-saving improvements to their FHA loan.  This addition to the loan does not affect a borrowers qualifying debt-to-income ratios or the loan-to-value of the property.

During the contract period on your home purchase, you must schedule an energy auditor who will evaluate the house's energy usage and potential energy efficient upgrades that qualify under the EEM program.  The inspection costs approximately  $350 and can be paid out of escrow at closing.

The auditor will provide a report that outlines potential energy savings with the upgrades.  You can obtain up to 5% of the purchase price for energy improvements, but it is limited to the amount predicted for the monthly savings on your utility bill. 

You can use the funds to:

This program will improve your home value, make your home more comfortable, reduce your energy usage which helps our environment and lower your monthly energy costs.  It's a great way to buy a home.

Do you want to buy a home but find yourself short on funds for a down payment?

You may make an income that will qualify for a loan, but are short on cash.  There are a number of down payment assistance programs in California that can help, some of which can be used for closing costs as well.  These programs are designed for people of low to moderate income, with income levels that are pretty generous, or for people in special groups, such as teachers.

These programs are often called "silent second" loans.  No monthly payments are required but the interest accrues until the loan is paid off through a sale or refinance.  Some programs involved an equity share agreement, in which the entity loaning the funds receives a percentage of the increased equity when the property is sold.

For example, the city of San Jose has a program called Welcome Home, which offers up to $25,000 in down payment assistance, at an interest rate of 3% with payments deferred.

The California Housing  Down Payment Assistance program (CHDAP) provides up to 3% of the sales price, also at a low deferred interest rate.  These funds can be used for the down payment or for closing costs.

There are down payment assistance programs for San Jose teachers and staff, and for San Jose State teachers and staff.

Very soon, I expect to have the guidelines for using the $8000 tax credit as part of the down payment.

Whatever state or city you live in, a good mortgage consultant can help you explore your assistance options and work to find funds to help you purchase a home.  Give me a call if you want more information about the local programs.

In the first part of this month rates jumped unexpectedly.  We had been lulled into complacency as rates remained very low for many months.

Even though rates are still very low in a historical perspective, borrowers who were looking at at  rate of 4.75% to 4.875% were devastated by a half percent increase.

The government has been working hard to keep mortgage rates low, and will continue to do so.

The reason why is pretty apparent. Although the stimulus package will put lots of dollars to work, there’s nothing quite like millions of homeowners having $300-400 extra every month because they refinanced into a lower rate. There’s nothing like these lower payments to help families pay their bills easier or to have a few extra dollars they can spend. Also, with home affordability at an all time high buyers are back IN THE MARKET

And there’s nothing quite like it to stimulate the economy.

The Federal Reserve has been buying hundreds of billions in mortgage backed securities, and they’ve been buying every day of every week.

Like with anything else when someone is buying huge quantities, it drives the price upwards. Higher prices on mortgage securities mean lower interest rates on mortgages.

When you look at the Fed activity, it looks like 4.5-5.5% is the level they’re trying to maintain. Rates bounce around within that general area, but when they get a little too high, the Fed is driving them down. We are seeing now that rates are at 5.5% which is the higher end of the fed’s desired range. Watch for rates to move lower in the coming days.

A big part of why they’re doing this is that the economy is still fragile. It doesn’t feel like we’re in free-fall anymore, but foreclosures are still raging through the land and layoffs are still occurring.

Lenders and the government are working closely together towards the same goal: Keep rates low, knowing that refinances and lower monthly payments will go a long ways to repairing the economy.

And they absolutely will do so to keep rates down and get the economy moving again.

We recently worked on a loan in my office that was almost ready to close, when an underwriter reviewed the appraisal photos and asked about the back wall of the house.  Apparently it looked like a climbing wall.

Underwriters are now forced to scrutinize every little thing and question anything that is out of the ordinary, due to more strict guidelines.  The underwriter did not know what to make of the climbing wall.  She requested that the appraiser return to the property to investigate further and take additional photos.  This was, of course, at a cost to the borrower.

When the appraiser verified that it was indeed a two story climbing wall, the underwriter became concerned of the liability this would impose. Of course, this would be the homeowner's personal liability and have nothing to do with the house, but she could not think of any other way to object to it and she knew she should object for some reason.

Finally, she requested that the appraiser certify that the house remained sound structurally even with the climbing wall attached.  The appraiser did not want to supply that certification since she was not a contractor.

We got underwriting to agree that a letter from a licensed contractor attesting to the soundness of the structure would satisfy this loan condition and, luckily, the homeowner was someone who dealt with contractors on a regular basis.  We got the contractor's letter and that condition was cleared.

The point of the story is to once again illustrate how picky underwriters have become.  If something about a loan is outside the norm, they question it and require additional documentation and explanation.  This often comes at a cost to the borrower and drags out the loan process.

I like the fact that we are back to the days where people have to actually qualify for their financing, but sometimes the restrictions and requirements get a bit absurd.