Credit Scores Explained in One Easy-To-Read Chart

Ever wonder why your credit (aka FICO) score is what it is? Do you think it’s lower than it should be especially since you’ve never had anything repossessed nor ever been foreclosed on? Well, here’s an easy-to-read chart explaining how not paying your credit card bills on time can effect your credit score (click chart to enlarge)…

(courtesy of SpendOnLife.com via AgentGenius.com)

Upcoming Changes to FHA Home Loan Guidelines = Higher Costs to Home Buyers

Upcoming changes to FHA home loan guidelines will increase the cost of buying a home for buyers - especially first-time home buyers. It may sound crazy considering the state of the national housing market, but it’s true.

Here’s the official HUD press release (click here if you don’t see the embedded HUD press release regarding FHA home loan guidelines)…

FHA guideline changes 2010 -

In a nutshell, here are the FHA home loan guideline changes and what they mean to you…

• The upfront Mortgage Insurance Premium (MIP) is going up from 1.75 points to 2.25 points (1 point = 1 percent of the loan amount). On a $200,000 FHA home loan, that’s an added cost of $1,000
• FHA home loans to borrowers with a FICO score (aka credit score) of 579 or less will go up from 3.5 percent to 10 percent. On a $200,000 FHA home loan, that’s an added cost of $13,000
• Many home buyers going with an FHA home loan ask for closing cost assistance from the seller in order to minimize the amount of cash they need to come up with out of their pocket. Currently, FHA guidelines allow seller closing cost assistance of up to 6 percent of the purchase price. The new FHA home loan guidelines will decrease the amount from 6 percent to 3 percent. I typically see closing costs (including pre-paid items) on FHA loans of between 4 to 5 percent. Under the new guidelines, the home buyer would have to come up with the last 1 to 2 percent out of their own pocket rather than asking for all of it to be paid for by the seller.

To put the changes into perspective, let’s see what the difference in cost will be to John and Jane Smith, first-time home buyers in Northern Virginia using an FHA home loan under today’s guidelines versus the new guidelines…

Today’s FHA home loan guidelines

John and Jane Smith are buying a town home in Northern Virginia for $300,000. They will need to come up with 3.5 percent of the sales price ($10,500) for the down payment. They’re happy that they don’t have to come out of pocket for their closing costs because the sellers agreed to credit them back 4.5 percent of the sales price ($13,500) to cover them. John and Jane need a total of $10,500 cash out of pocket to buy the town home.

Upcoming FHA home loan guidelines

John and Jane Smith will need to come up with $10,500 for the down payment if their credit score is 580 or above. If their credit score is less than 580, they will need to come up with $30,000 for the down payment. The seller will only be able to pay up to 3 percent of their closing costs so they will need to come up with the remaining 1.5 percent ($4,500) out of their own pocket. In addition, they will pay an extra .5 percent ($1,500) in upfront Mortgage Insurance Premium (MIP). The total increase in cost to buy the same town home will be either $16,500 or $36,000 depending on their credit score with the majority of it coming out of their pocket in cash.

Under the new FHA home loan guidelines, Jane and John will need at least 62 percent, if not 343 percent more cash out of pocket to buy the same town home.

When do the new guidelines go into effect? No official date has been set. But they are coming and the word on the street is sometime late spring/summer 2010.

If you’re sitting on the fence when it comes to buying a home right now, you may want to jump off and take advantage of the current FHA home loan guidelines (and federal tax credit) before they change. If you don’t, you could be in John and Jane’s shoes and need an additional 62 percent (if not 343 percent) to buy the same home in the future.

If you have specific questions about the FHA home loan guidelines, the housing market or real estate in general, email or call me - 703.582.6900 - danilo.bogdanovic (at) gmail (dot) com.

New RESPA Guidelines and Good Faith Estimate - Good or Bad?

New RESPA (Real Estate Settlement Procedures Act) guidelines have come out and they will change the way Good Faith Estimates look beginning January 1, 2010. The changes will also increase the level of accountability that goes along with the lending process - for both lenders and borrowers. Some are “hootin n hollerin” about the changes while others are happy about them. Here are two people’s reactions to the changes…

“Hootin n hollerin” about the changes…

On the training conference call on Wednesday were originators from across the country who worked for direct lenders, brokers and banks. The common sentiment was that the consumer will in reality end up paying higher costs for loans as originators will not want to risk under-disclosing costs and fees, not just their own but those of escrow companies, title companies, appraisers, surveyors, etc, and be stuck with the tab.

- Excerpt from an article in The Orange County Register by Marilyn Kalfus

Happy about the new Good Faith Estimate and RESPA guidelines…

It completely evens the playing field on both sides of the table.  It also comes with like a definition page that outlines what is encouraged to shop around for and what is not negotiable.  No more “nickel and diming” over every line on the GFE.

The best part is that the definition of “application” has SSN as a REQUIRED field.

There are LOTS of skeptical people out there (rightfully so) that do not like to provide a SSN, but ask us to provide a “ball park” GFE based on the information provided.  RESPA no longer allows a GFE to be offered without a SSN.  This allows lenders to provide a responsible and more accurate GFE and prevents prospects from calling 10 banks asking for GFE’s just to see what their fee’s are.

Ooooh, just lots of good stuff – once again, for both borrowers and lenders…

Honesty, reliability and accountability is what the new GFE provides.

It puts the Good back in Good Faith Estimate!

- Christopher Koegler, Operations Manager - American Funding, Mclean, VA

I think that the new RESPA guidelines and Good Faith Estimate are good in theory, but theory and reality are two different things. We’ll have to wait and see just how they actually effect borrowers and the real estate industry as a whole.

What do you think?

P.S. Here is the new Good Faith Estimate (if you don’t see the embedded document below, click here)…

New Good Faith Estimate beginning January 1, 2010 -

Possible Changes to FHA Mortgage Guidelines Not Good for Home Buyers

The U.S. Government has been touting how the original and now extended (and expanded) first time home buyer federal tax credit has been helping the housing market and overall economy. Yet, at the same time (and on the down-low), they’re trying to pass legislation that will make it harder for home buyers - first and veteran - to buy a home.

“They’re seriously making it even harder to buy a home in this housing market?!”

Yes, seriously. Let’s take a look at what’s going on…

H.R. 3706 - The FHA Taxpayer Protection Act of 2009 was referred to the House Committee on Financial Services on October 1, 2009. This bill would require borrowers with FHA insured mortgages to make down payments of at least 5 percent of the purchase price and would prohibit rolling closing costs into the loan.

Currently, the minimum FHA down payment is 3.5 percent of the purchase price and closing costs can be rolled into an FHA loan.

In addition, the Secretary of Housing & Urban Development, Shaun Donovan on Wednesday outlined further plans to make sure FHA home buyers had more at stake and to put more money in the FHA’s reserves, which are extremely low at the moment.

Here are the highlights of the FHA policy proposal:

• Reduce the maximum allowable seller concessions from 6 percent of sales price to 3 percent
• Raise the minimum FICO score (aka credit score) required to qualify for an FHA loan from 620 to 640 (or more)
• Increase the up-front cash that a borrower has to bring to the table in an FHA backed loan
• Increase in the up-front mortgage insurance premium a buyer is required to pay
• Ask Congress to raise the annual mortgage premium a FHA buyer has to pay

And here’s a scary fact… The FHA can make most of these changes on their own with no additional authority or legislation required. Donovan claims that they will provide detail and public guidance for these changes by the end of January.

We’ll see…

Consider this… The majority of loans in 2009 were FHA (about 80 percent of my buyer clients did FHA financing). If it gets harder to get an FHA mortgage, the number of home buyers could decrease. If that happens, the market could soften. And, on top of that, the extended and expanded home buyer federal tax credit expires March 31, which is about the same time that these new FHA mortgage guidelines would go into effect. The timing of both of those could make things interesting.

Hat tip to Jay Thompson (aka The Phoenix Real Estate Guy)

Putting Mortgage Rates Into Perspective

I’ve heard some folks saying, “Uh oh…mortgage rates are up!” and “Mortgage rates went up a lot (1/4 point) since last week and I’m going to wait for them to go back down.” Yes, mortgage rates may have gone up since last week. Yes, they may (or may not) go back down (though, in my humble opinion, the only way from here is up).

But seriously…do you realize how good we have it right now when it comes to mortgage rates and points?!

Let’s put things into perspective…

Several of my home buyers with good credit recently got sub-5 percent mortgage rates with no points (a point is equal to 1 percent of the loan amount). Not too long ago, people could only dream about single digit rates, let alone sub-5 percent. Here’s the pudding…

- In July 2006, the average 30-year fixed-rate mortgage was at 6.76 percent with .5 points

- In July 2001, the rate was 7.13 with .9 points

- In July 1996, the rate was 8.25 with 1.8 points

- In July 1991, the rate was 9.58 with 2 points

- In January 1982, rates were 17.48 with 2.2 points

When is the last time mortgage rates were below 5 percent with less than 1 point? They haven’t been this low since Freddie Mac started tracking mortgage rates in 1971.

Let’s crunch the numbers on a $400K loan…

• At a 5.0 percent mortgage rate with .7 points, your principal and interest would be $2,147.29  and your points would equal $2,800
• At 8.25 percent with 1.8 points, your principal and interest would be $3,005.07 and your points would equal $7,200
• At 17.48 percent with 2.2 points, your principal and interest would be $5,858.79 and your points would equal $8,800

Aren’t you glad you’re buying a property at today’s mortgage rates rather than those of the last two decades (especially with prices at pre-2000 levels in some areas)?!

And don’t forget the icing on the cake…the $8000 first-time home buyer federal tax credit.

So next time you say, “Rates just went up” remember that it could be worse…MUCH worse.

For a complete list of the average mortgage rate and points per month since 1971, click here.

If My Iraq War Veteran Home Buyers Just Got a 3.875% Interest Rate, Why Can’t You?

My Iraq War Veteran first-time home buyers (that’s them in the photo) and I thought we were hearing things when the lender said, “You qualify for a VA loan at an interest rate of 3.875 percent.” But we heard correctly! Qualified Veterans can get an interest rate as low as 3.875 percent on a VA (Veterans Affairs) loan.

Here’s the deal my Iraq War Veteran first-time home buyer clients got just last week:

• 3.875 percent interest rate for first 5 years
• No points
• The rate adjusts according to the Treasury ARM Rate (which is better than the LIBOR ARM Rate)
• The interest rate can’t increase more than 1 percent per year (only after the first 5 years)
• The maximum interest rate they can ever have is 8.875 percent regardless of how high future rates are
• No prepayment penalty

They are not planning on staying in their home for more than 5 to 7 years so this loan is perfect for them. A 30 year fixed rate VA loan is currently in the 5.25 percent range so they are saving about 1.5 percent on the interest rate. That comes out to a savings of $209.02 per month based on the amount they financed.

By the time they move, their rate will be between 3.875 percent and 5.875 percent. I think it’s safe to say that either of those rates will be lower than what the 30-year fixed rates will be in 5 to 7 years.

Besides saving money, why else is the low rate and cap so important?

Because the loan is assumable. This means that rather than a buyer having to go out and get their own financing/loan to buy this home, if they qualify, they can assume the existing loan and it’s terms (aka interest rate).

Let’s say rates are at 10 percent in 7 years. A qualified buyer could purchase their home and assume the loan at no more than 5.875 percent with the cap being at 8.875 percent.

And also because they’re building equity in their home more quickly. The lower the interest rate, the more of the monthly payment goes towards principal rather than interest. This means they will have paid down more principal and they will have more equity in their home than had they gone with a 30-year fixed rate loan at 5.25 percent.

How fast do you think they will be able to sell their house in 7 years when rates are 10 percent with “Current 3.875 to 5.875 percent interest rate assumable loan”?!

Can you say, “FAST!” No matter what the housing market conditions are like in 7 years, this property will stand out above the rest for the assumable low-rate financing alone.

Let’s do the math and see why.

Let’s say the property is worth $350K and rates are at 10 percent 7 years from now…

• If the buyer finances $350K at 10 percent, their Principal and Interest comes out to $3,071,50
• If the buyer assumes the current loan at 5.875 percent (the most it can be in 7 years), their Principal and Interest comes out to $2,070.38

That’s a savings of $1,001.12 per month.

In addition to saving $1K per month, the buyer will be building equity in the home much faster at the lower interest rate than they would at a higher interest rate because more their monthly payment will be applied to Principal rather than Interest.

Now you see why buyers will be all over this property like white on rice!

It’s a “win now and win later” situation for my Veteran first-time home buyers, as well as all Veteran home buyers.

If you are a Veteran and thinking about buying a home, email or call me and I will put you in touch with the loan officer that my clients worked with.

Good News For Home Buyers Using FHA Financing!

Good news for  home buyers using FHA financing! The Federal Housing Administration (FHA) has no plans to implement the Home Valuation Code of Conduct (HVCC), which has been the cause of a wide array of problems for home buyers, sellers and lenders.

The FHA is looking at alternatives to the HVCC it feels would insulate appraisers from pressure from lenders while not hurting consumers and lenders.

I’m all for keeping lenders from pressuring appraisers to “hit the number”, but the HVCC is not the way to do it. Glad the FHA realizes this too and that it’s taking steps other than adopting the HVCC to accomplish this.

If you are thinking about buying a home and using FHA financing, there are several great FHA lenders in the area you can speak with. Email or call me and I’ll send you a list (click here to contact me).

3rd Largest FHA Lender, Taylor Bean and Whitaker Shut Down

If the Federal Housing Administration is trying to send a message, it just did - using an elephant gun. The country’s 3rd largest FHA lender, Taylor, Bean and Whitaker Mortgage Corp., ceased lending and closed its doors yesterday after being barred from making new loan guarantees by the FHA (click here for excerpt of TBW press release).

The FHA, citing concern about possible fraud, plans to sanction two top officials at Ocala-based Taylor Bean for providing “false” information to the agency, according to an FHA statement released yesterday.

Why does this matter to you?

Because TBW will not servicing any of the estimated 30,000 loans it has in its pipeline - and your loan may be one of them. This includes those loans that mortgage brokers used TBW as the originator for. Though it looks like Bank of America will be taking over servicing of these loans, borrowers could still be looking at possible delays.

What lead to this?

FHA Commissioner David Stevens explains,

“TBW failed to provide FHA with financial records that help us to protect the integrity of our insurance fund and our ability to continue a 75-year track record of promoting, preserving and protecting the American Dream. We were also troubled that the Company not only failed to disclose it was a target of a multi-state examination and a separate action by the Commonwealth of Kentucky, but then falsely certified that it had not been sanctioned by any state. FHA won’t tolerate irresponsible lending practices.”

Lesson #1: Don’t mess with the new FHA.

Lesson #2: Be wary of mortgage brokers - you don’t always know who they’re using to fund your loan and it could be a company such as TBW. Using a direct lender is typically safer, less expensive and comes with a higher level of service (click here for more on mortgage brokers vs direct lenders).

Sources: Media-Newswire, Reuters, Bloomberg

NAR Survey Shows Negative Impact of New HVCC Appraisal Guidelines

The National Association of REALTORS® just did a survey of members and appraisers regarding the new Home Valuation Code of Conduct (HVCC) appraisal guidelines. The results confirmed what I and others have been saying since May - the HVCC has made the appraisal and entire real estate transaction process longer, less accurate and more costly to consumers, agents and lenders alike.

Here’s a copy of the survey’s results (click here if you don’t see the embedded document below)…

NAR HVCC appraisal survey results -

In a nutshell, the new HVCC appraisal guidlines have,

• increased the length of time it takes to close a transaction
• increased the cost of the appraisal to consumers
• decreased the quality of appraisals (which has also lead to deals falling through)
• decreased the amount of money appraisers are making per appraisal

Many agents and brokers including myself are sharing our clients’ as well as our own frustrations with the powers-that-be in an effort to get the guidelines revoked or changed immediately. If you’ve had a bad experience thanks to the new HVCC appraisal issues guidelines since May 1, please leave a comment or drop me a line so I can forward it up the food chain (anonymously if you’d like).

Clarification, Some Change Coming to New HVCC Appraisal Rules

As some of you know, the new Home Valuation Code of Conduct (HVCC) was supposed to be a good thing for consumers and the mortgage and real estate industries. But it had quite the opposite and negative effect.

But that may be (slowly) changing. The National Association of REALTORS® along with several other groups voiced their opinion to the New York Attorney General’s office, the Federal Housing Finance Agency and Fannie Mae.

The result? New HVCC/appraisal “guidance” for lenders.

The two main issues have been addressed (in theory - we’ll have to see what happens in real life)…

1. Inexperienced appraisers conducting appraisals in areas they don’t know much, if anything at all about.
2. Inaccurate appraisals (mainly due to issue number 1 above) with no way to formally object and a total lack of willingness by the appraiser to correct the appraisal.

Make sure you check out the post over at VAR Buzz that goes into more detail about the new “guidance” and clarifies things in greater detail (there’s also a link to Fannie and Freddie’s updated FAQ sections at the bottom of the VAR buzz post).

We’re far from seeing the issues completely resolved, but it’s a start…

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