Michigan Real Estate Purchase: Don’t Get Taken Advantage Of.

It’s so odd to me that so many people claim to have been mistreated by their mortgage lender. There is a litany of paperwork we are required to provide to you when you apply. I am sure there were plenty of less than reputable loan officers out there that didn’t care to go through the numbers, but an even slightly educated borrower can’t be taken advantage of. So, here’s how to become an educated borrower.

 

The Good Faith Estimate. Make sure you get one, make sure you get one from several lenders, make sure you compare them row by row and not the bottom line. Some lenders may trick you by not providing certain numbers that will pop up later (read my other blogs), make sure you don’t use anyone that leaves numbers off.

 

The Borrower’s Bill of Rights. Make sure you get one, make sure you understand it. You can get it right here: Borrower’s Bill of Rights, but don’t trust anyone that doesn’t give you one- you know since it’s required by law and all. They are easily understandable, just actually read it.

 

You have the right to shop around, you have the right to know how much the lender is making. This doesn’t just mean the fees, but how much they are making from the interest rate. Also, most people think only a broker makes money from the interest rate…and they are wrong. Banks make yield spread too, even when they fund the loan, so make sure to get IN WRITING how much they are making.

 

The HUD-1 Settlement Statement. This has all of the details of your loan, save the interest rate. All fees will be lined up for you and this is the FINAL document to calculate these costs. A major mistake most borrowers make is to wait until closing to see this. You have the right to see this before you sit down to close. Demand your loan officer provide it a day before closing.

 

Most importantly, don’t accept the run around. There are a million and one excuses a lender can use to get around providing these documents in a timely manner. Unfortunately for them, you now know that they are required to do so.

 

Simply don’t accept it. Look at more than the bottom line. Look at the integrity of the individual you are working with. If you can have faith in that person, you should do fine.

 

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Michigan Mortgages: Hope for Homeowners? This time it just may be true.

Call me a softy and a nerd. It’s hard to believe, but yes I was one of the few that sat and watched Steve Preston’s address to the National Press Club this past Wednesday. Many of you may not know who that is, but he is one of the most powerful people in the nation right now because he is the Secretary of the U.S Department of Housing and Urban Development (HUD) and he is trying to create hope for thousands of Americans that are currently facing foreclosure, or are soon to be facing foreclosure.

 

Unfortunately, as powerful as he may be, he is still all but hog tied by private industry and private industry is not budging. How bad is it? It was said that in the first two weeks of October 42 people applied for the Hope for Homeowners and all 42 were denied. First of all…42? Nationwide 42??? That’s a joke. A joke that Steve Preston did not find funny.

 

Why has it failed? Simple, the private markets are already strapped for cash and not looking to spend more. FHA’s flaw is that it cannot move without lenders to make the loan that they will insure. Lender participation has been non-existent and has crippled the legislation set forth to help “Main Street.”

 

So, what’s going to be done? There are two important things to remember. FHA will be raising the LTV cram-down from 90% to 96.5%. FHA will be providing up front payment to second liens holders for immediate release of these liens. Both of these actions should provide enough incentive for current lien holders to chose negotiation over foreclosure.

 

Debt ratios are normally strictly 31% for your housing payment and 43% for your total debt with FHA. The Hope for Homeowners program will open up to 38% and 50% for those that can get down to 90%, again adding more qualifying applicants to the pool.

 

They also will open the program to longer loan terms. If your debt ratios don’t quite qualify at a 30 year term, you can also use a 40 year term to qualify. I suspect this is something that will come to the normal FHA loan soon. 40 and 50 year terms have successfully brought homeownership to thousands of Europeans over the past three decades and it’s very long overdue in America.

 

Lender participation will still dictate the effectiveness of FHA’s proposed help, but hearing these changes delivered from a very poised and positive Steve Preston finally brought me hope for the Hope for Homeowners program.

 

At least now we will see once and for all which is the proper method for dealing with this crisis- government intervention or capitalizing private market. Let me assure you, this is the final straw. If banks do not take to these changes and start making new loans….your tax dollars for the “bailout” will have been COMPLETELY WASTED. These banks have made billions, the CEOs have made millions at least one of them needs to step up now and join the club in trying to actually help people…I’m looking at you Chase.

 

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Michigan First Time Home Buyer: How to Prepare.

I talk to hundreds of first time buyers year after year and there are hundreds that don’t qualify by just a bit. They are so close but can’t get it done. I explain to them how close they are and offer direct advice on how just a month or two of fixing their issues will get them where they want.

I go through the trouble to give them the advice they need knowing full well that they will not follow up. Whether it is the lack of confidence to overcome or just plain laziness, so many of them give up and never come back.

 

So if you are just dipping your feet in the water and thinking about buying in the near future, let this help you prepare now to never have to feel the sting of denial.

 

Your Income: I know a lot of you work jobs where you get tips, or you are just now getting raises, or are new on the job. If you are in any type of training period you will not be able to get a mortgage, but don’t worry as soon are that’s done, you are qualified. If you have gotten tips and never claimed much of them, it is essential that you spend 6 months claiming even more than you are actually earning. Even though it will mean less money in your pocket during this time, it will do wonders to raise the 2-year average of you income and increase your ability to qualify.

 

Your Credit: If you don’t have any, get some immediately. I know you may think that not having any debt may be good, but you are wrong. The bank needs something to judge you on and credit cards are essential. They show your ability to repay a mortgage while not adding a lot of monthly payments to your debt ratio. If you have a boyfriend/girlfriend, mom/dad, sister/brother that are willing to add you on their current credit card accounts do so immediately. Try to get one on your own too. This is the type of thing that if your score is slightly low just a month of obtaining credit can make the difference of qualifying or not.

 

Other factors: If you are on the edge of qualifying or not, the best thing you can do is to add any type of factors that can compensate for the areas you lack. If you pay rent in cash, get a checking account and start writing checks. Showing 6 rent payments made on time will do wonders at improving your qualifications, but cash just doesn’t count. Money orders may work if you pay to an apartment complex but if you are renting a house, only checks will do it.

 

Start saving money. People always feel like it does not count, but even $500 will definitely increase your chances of qualifying.

 

Good Luck to you all.

 

For more in-depth information, go to our website:

 

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Michigan Real Estate Purchase: First Time Home Buyer Tax Credit

There is a whole bunch of confusion concerning this new First Time Home Buyer Tax Credit and I am looking to simplify things for you like I have been trying to do with all of my blogs.

 

I think that the most important thing to realize here is that it is not free money! It is not. It is in effect a no-interest loan from the government. It is to be repaid over a 15 year period. You won’t be able to default because it will be taken out of your income tax refund of added to your charge every year.

 

So, I shouldn’t take it? Of course you should take it! If you aren’t sure why you should, call up Citibank and try to get a 0% loan from them with a 15-year term. Unless you are complexly set credit and savings wise…which I think it pretty much NOBODY in Michigan, you should take advantage of this.

 

What you have to be careful of is blowing this money on useless stuff and then ending up owing it back to government.

 

There are many good ways to use this money, here are a few examples:

 

Pay down the principle balance of your mortgage. In fact, if you get $7500 and put it directly on your principle balance of a $100,000 mortgage, that one payment will cut 4 years and $60,000 in interest payments right off of your mortgage! Even when you repay the loan, it will still end in an overall savings of $46,000.

 

Pay down high interest credit cards. In effect, this tax credit allows you to do a completely risk free debt consolidation loan. Pay that high credit card loan off, use the boost in credit score to get a better credit card at a lower interest rate, let the paid off card sit there open with no balance and enjoy a great credit score for quite some time and save thousand on future mortgages, credit cards, car insurance…you name it.

 

Invest it. Ok, so maybe the stock market isn’t so hot now, but if you can find something safe that it sure to yield, it is a win-win for you my friend. Heck, even a high yielding savings account or a 2-year CD will make you great money.

 

Take advantage now, because the tax credit goes away if you close on your new home after July 1, 2009. Happy Home Hunting to you all!

 

For more in-depth help, go to our website:

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Michigan Real Estate Purchase: Assembling Your Purchase Team

If you are going to buy a home in Michigan, especially in this foreclosure driven market, nothing is more important than the team of professionals you choose to represent you. Consider these points in your search.

 

Rome wasn’t built in a day. Do you not rush into any situation. Take at least a week to look around for reputable companies to deal with. Talk to friends and family, do some research on a few companies you target, and never consider only one source for information.

 

Your loan officer is the first step and most important step. This person will be digging through all of your most personal documents, and trust is necessary. It should probably be an actual person that you actually meet and actually believe in.

 

The biggest mistake is to judge just by numbers and promises, which are easily fabricated.  Judge their willingness to provide written estimates of their services. Sit back, and listen…are they mentioning a Good Faith Estimate? If they don’t chances are they want to tell you about how great everything will be without any type of proof to their promises. If it is not offered…walk.

 

What about the reputation of the company itself? Do they keep a neat office, offer you a warm environment, are they licensed in any way or any formal training? I always look for a decent website too. I figure if they can’t at least be found on the Internet…yikes.

 

Now for a Realtor. I think one important thing to know is how Realtor’s get paid. If you find a house you like and call the Realtor that has listed that home for sale- that Realtor works for the seller. If it is a foreclosure property, that Realtor works for the bank and gets paid from the bank. So…I guess just consider that in your decision.

 

So what makes a good Realtor? Some questions to ask yourself are: Are they listening more or talking more. You want someone to find your dream home not sell you on one. Are they pushing you to sign a contract to work with only them? It’s only my opinion, but good Realtors do not do this. Do they have the resources you need? Can they email you properties rather than having you drive to their office to discuss each one.

 

Your loan officer might recommend someone, but I would take their person and interview them along with others. Much like when a Realtor recommends a lender, you never know exactly why they are referring business to anyone and it may not be so noble. It may be though, so consider them but put them through the same process as anyone.

 

A good insurance agent and you’re set. Again, interview the agent just like you are interviewing them for when something goes wrong. Like with all of these service providers, it is easy to look impressive when things are peachy. Try to find out how they are when things aren’t.

 

Again, be weary of referrals. And again, don’t do the “bottom line” judgement. With all of these services, its much more about the value in the service than just the price of the service. I mean, you can get your hair cut at a barber college for a third of the price, but people who get cut there typically spend a lot of time being lonely.

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Michigan Real Estate Purchase: Credit, or Reaching for Perfection

I know, seems so simple. Pay your bills on time, don’t claim bankruptcy, but there is a lot more to it than that. So, what goes into a good credit score?

 

Good Payment History: Obviously.

 

Length of Payment History: One of the distinct disadvantages of a younger person.

 

Balance to Limit Ratio: For your credit cards it is essential to keep the balance below 50 percent. If you really want to have great credit, 30% is even better. The dollar amount is not important, it’s the percentage.

 

Diversity of Accounts: Mortages, car loans, installment loans, student loans, credit cards, and charge cards they all help to show the variety of debt that you can properly manage.

 

Manageable Inquiries: No more than one per month. This will show that you are not trying to obtain new debt at a rate faster than you can handle.

 

Solely Owned Debt: Fairly new to the credit factor, but it is essential to have debt you obtained on your own rather than cosigned accounts.

 

Take all of these into consideration when trying to perfect your credit and make sure that you can make the payment before obtaining any new debt.

Michigan Foreclosure Purchase: What can the selling banks do or not do?

I have close a lot of foreclosure purchases over the last two years and have ran into some very odd demands from the selling banks. I would like to provide you with some of this information now on what these banks can and can not do that might help you in your own pursuit.

They can demand that you provide them with a pre-approval letter.
They can not demand that you obtain a pre-approval letter from any specific lender or broker. The doesn’t mean you won’t be told otherwise, but RESPA prohibits a seller, real estate agent, insurance agent, or anyone else from demanding an individual use any specific lender.

They can demand that your lender’s pre-approval letter states that you are credit worthy.
They can not demand to have your credit report or credit scores be provided to them. The Gramm-Leach-Bliley Act protects your privacy from any entity involved in the transaction that is not your financial service provider. You can give written permission for the selling bank to see these, but I certainly would advise against it.

They can write purchase agreement addendums that supersede any original terms of the purchase agreement you signed with your Realtor and submitted to them.
They can not hold you to any terms that you do not agree to in writing. Though you may be excited to hear that your offer was accepted, I urge you to sit down with our Realtor and Loan Officer before signing the addendums that come back from the bank.

They can refuse to pay for a title insurance policy and pass the cost on to you.
They can not force any of their closing costs on you without disclosure in the purchase agreement. Seems like more and more we find extra little charges being slipped into transactions. If you didn’t agree to pay it, you don’t have to- just be sure to review your HUD-1 Statement with your loan officer.

I hope this helps some of you out. I am sure more will pop up in the future. If you have any requests for info, just email me matt@iconmortgagelending.com or go to our website: www.iconmortgagelending.com

Michigan Real Estate Purchase: Credit Scores and What to Think about Your Score

I know it is hard to understand exactly what your credit score is, how it is calculated, and especially how it affects you when you want to buy a home. Here is a general, and easy to understand guide to your score in reference to obtaining a mortgage.

 

Below 500: Well I can’t sugar coat it, you are in pretty deep. This is where it may be a good option to seek consultation from a good attorney or a non-profit credit repair service (emphasis on non-profit).

 

501-560: You score is pretty low, but not beyond repair. You will not be able to qualify for a mortgage while your score is in this range. However, if you struggle through some high interest credit cards, maybe a secured card or two, you can bring it up.

 

561-619: You can probably obtain a mortgage, but it will be a very trying experience. You may be better served by simply waiting a month or two, trying to pay down some credit card balances, whatever you can do to optimize your score.

 

620-680: It may still seem just average, but in mortgage terms life is much peachier about the 620 mark. There are some things you won’t be able to do. You may find it difficult to purchase with no money down. But as long as there isn’t something odd about your application keeping you from obtaining a government backed loan, you are golden.

 

680 and up: Yes I realize that your score can get much higher from a 680, but for mortgage purposes there is really not much difference once you are above a 680. Once you get over 720 you may get a very slight rate discount, but nothing noticeable. Today is November 18, 2008 and this breakdown may change as the lending business tightens even more but for now, that’s what it is.

 

I hope this helps, and good luck on all of your financial endeavors.

 

For more in-depth answers or help go to our website:

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Michigan Real Estate Purchase: The Deadly Repair Escrow

Bum Bum Buummm.  Enter scary music and cold sweats, you just fell in love with a home that has a broken furnace and a big orange stain where a bathtub used to be. Chances are your financing is going to resemble that orange gunk on the tile right?

 

There are options. With conventional financing, yes you will be sunk. The bank will only want a safe asset to secure. There are some programs that allow flexibility here like HomePossible, but it is very impractical.

 

The good news is, that with the foreclosure boom, came the need to repair existing homes as production of new homes slowed to a crawl. Government financing fills the void of sensible repair financing. Actually it filled a long time ago before the housing boom started and home construction grew out of control.

 

With FHA there is a possibility for a repair escrow; however the repairs must be minimal. The better option is the 203k loan that will allow a closing to take place like normal but provide you with money for all sorts of repairs including essential appliances.

 

If you are lucky enough to find a good loan officer that knows how to work the USDA repair options, they are far superior. You will need to find a property in an eligible area, but it is a very easy process on the borrower.

 

No matter what, be prepared for a little extra time and effort by both you and your purchase team. Always shop around for your repair quotes and check the reputation of any contractors with resources like the Better Business Bureau before making any decision.

 

For more in-depth answers or help go to our website:

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Michigan Real Estate Purchase: Mortgage Insurance and WTF is this PMI?

We all hate it…but few of us know what it is. First, the insurance I am talking about is different than what you would get from AAA, which is home owner’s insurance. A lot of first time buyers get that confused.

 

It is very similar though, except instead of you insuring your home, the lender is insuring its money. When you get a loan, if you put less than 20% as a down payment, the lender requires you to pay an insurance premium on this 20% that they are lending you. This is strictly for your lender and it is insurance for them in case you do not pay them back…the 20% would be covered on the insurance that you pay each month for them as a part of your mortgage payment. It is basically a penalty for not putting down the “standard” down payment amount. If you look at the bottom of the GFE your loan officer provides you, it breaks down the payment and what goes where. You will see “mtg. insurance” and the monthly affect on your payment.

 

Unfortunately, if you are putting less than 20% down, there are very few options to get rid of the mortgage insurance, but there are options. If you were to obtain your financing from the USDA Rural Development program, there is no monthly mortgage insurance. Some lenders offer a mortgage insurance buyout by charging an upfront fee, but there is little difference in saving.

 

For more in-depth help or answers, go to our website:

 www.iconmortgagelending.com