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! 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).
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).
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)…
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).
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)…
- Inexperienced appraisers conducting appraisals in areas they don’t know much, if anything at all about.
- 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…
The new Home Valuation Code of Conduct (HVCC) rules that went into effect May 1, 2009 were supposed to protect consumers purchasing and refinancing homes by eliminating fraud and inflated appraisals. But the new appraisal rules are having a completely different and negative effect. They have made buying real estate harder and more expensive for home buyers. And it’s not only buyers getting hurt – it’s sellers, appraisers, real estate agents and lenders.
I’m not going to go into detail as to how the new process works here on this post. For a great explanation of that, check out Chris Griffith’s post entitled, “The HVCC Wal-Mart Effect”.
What I am going to discuss is how buying and selling real estate has changed since the new rules went into effect. Let’s take a look at real life examples involving either my or fellow agent’s clients…
Real life example #1: Appraisals are coming in low. And sometimes ridiculously low. Buyers who don’t have a hidden stash of thousands of dollars to make up the difference between the appraised value and purchase price are left to try and convince the seller to lower their purchase price. Any seller and their listing agent who knows the local real estate market and values will know that the appraisal is not accurate and tell the buyer to take a hike (in this market, there’s another ready, willing and able buyer nearby).
This just cost the buyer the chance to buy a home they love and they have to start back at square one. The seller has to go back on market in order to avoid losing thousands of dollars thanks to an inaccurate appraisal.
Real life example #2: Many Listing Agents and sellers no longer want to see FHA or VA financing on an offer. They’re either taking lower offers that are doing conventional financing or flat out saying, “No FHA or VA financing.”
Buyers with FHA or VHA financing are getting their offers rejected or can’t even submit an offer on many properties.
Real life example #3: Based on the average time from contract to settlement date (30 to 45 days), buyers are locking in their interest rates, setting up movers, contractors, turning in notices to their landlords, terminating leases, etc. As little as only 1 week before settlement date, the appraisal is nowhere to be found. Sometimes, not even the appraiser is anywhere to be found. Either the appraiser has to be hunted down or another appraisal has to be ordered. Either way, settlement is delayed.
To the buyer, this could lead to their rate lock expiring and their interest rate becomes higher than at the time of contract. It could also mean that they now have to pay a penalty for rescheduling movers, contractors, the lease termination date, etc. And even worse, it could mean that the buyer is in default of the contract – this could lead to a $100 per day penalty and/or loss of earnest money deposit.
Real life example #4: Appraisal fees were an average of $300 to $350. Now they’re an average of $400 to $500.
Who pays the appraisal fee? The buyer.
Real life example #5: A mortgage broker goes with lender “A” for the buyer’s financing only to find out that lender “B” has a lower interest rate and lower closing costs. Rather than lender “B” being able to use the completed appraisal from lender “A,” lender “B” has to order a new appraisal costing the buyer another appraisal fee.
The buyer has to pay another $400 to $450 for the second appraisal.
These are just some of the real life examples of what’s going on out there. As long as the HVCC stays in effect, home buyers will continue to pay more money for crappier service and, in many cases, their chances of getting their offer accepted will continue to be diminished. Not only is the HVCC screwing the transaction up for buyers and sellers, the new HVCC rules could be the single largest hurdle to US home price recovery.
The HVCC needs to be rescinded or changed – ASAP!
Mortgage rates are ridiculously low right now. Words such as “historically” and “unbelievably” are being put in front of “low rate of…” by lenders, the media and consumers alike. But that may changing. And quickly.
Mortgage rates have already gone up well over half of a point in the past few weeks and are over 5 percent. Heck, mortgage ratest recently went up half a percent in just one day! The increase in mortgage rates could be a sign of things to come.
Why? Because mortgage rates are artificially deflated. That’s right, I said it – artificially deflated.
The government has been pumping money into the markets to artificially keep rates down in order to stimulate the housing market and keep the entire US economy from collapsing. Aside from this infusion of borrowed money, there is very little, if anything, that justifies rates being this low.
Here are 3 major issues with what’s going on right now…
- The government is running out of money to pump into the market. Once there’s no more to dump into the market, you’ll see rates increase almost immediately (funny how the government is starting to run low on cash and rates are already on the rise)
- The more the US goes into debt by pumping borrowed money into the market and buying up mortgage backed securities (MBS), the more interest rates will go up in the future (for a variety of economic reasons). This problem will be even greater if the government now borrows even more money to keep mortgage rates down even longer (which they’ve already done a few times)
- The government can only buy so many MBS and once they can’t buy any more, the MBS have to be sold on the traditional secondary market and investors. Investors are becoming less and less eager to buy MBS at such low rates and will stop buying them up until they come with a higher rate of return (aka higher mortgage rate)
Many (including the government) have previously said that rates would stay low for the remainder of 2009. But even some of those folks are starting to question that theory and are now saying that rates will start to rise well before the end of 2009 – as they’re already doing (see the following chart courtesy of BankRate.com).
Nobody has a crystal ball and can say what will happen with certainty. But many signs point to a low chance of rates going down from here or staying put and a much greater chance of them going up. We could very well be in the perfect storm and see 6 or even 7+ percent mortgage rates by the end of the year.
Looks like I spoke too soon… HUD has approved first time home buyers and lenders (mortgagees) using the up-to-$8000 first time home buyer tax credit as a down payment, to pay closing costs and/or buy down the interest rate. The official HUD letter with guidelines was released yesterday. Here it is (if you can’t see the document, click here)…
The next step is for banks/lenders to come up with a system internally that will allow them to offer this to borrowers. This could take a few days to a several weeks. Check with your lender to see if/when they have a system in place for you to take advantage of this program.
P.S. This “use your tax credit as a down payment” program is set to expire this November. The up-to-$8000 first time home buyer tax credit as a whole is set to expire December 1, 2009.
Hat tip to Dulles Association of Realtors (DAAR) for breaking the story.
On May13, HUD Secretary Shaun Donovan said that the Federal Housing Administration (FHA) is going to permit its lenders to allow first time home buyers to use the $8000 tax credit as a down payment (aka “monetize” the tax credit).
The next day, May 14, the Office of Management & Budget told the FHA to hold off on implementing the program because it was only a “proposal” (aka “sike!”).
Since then, consumers, agents, lenders and others have been waiting (impatiently) for a final and real answer to if/when the first time home buyer tax credit will be “monetized”.
Well, here’s the latest. According to an article in the Wall Street Journal,
“The FHA says that the rumors about the program’s demise were flat-out wrong and that the program will be rolled out soon. Some industry analysts say that the memo may have been pulled because the program, which uses a tax credit established in February’s stimulus package, needed an OK from the White House budget office.”
If the program is approved, it would only be available through November of this year so time is a ticking…
I’ll keep you posted as more becomes available.
The way appraisals are done and handled is changing dramatically thanks to the new Home Valuation Code of Conduct (HVCC). Rhonda Porter wrote a good post explaining the changes over at Rain City Guide. Here’s an excerpt:
In a nutshell, mortgage originators (if paid commission) will no longer have contact with appraisers for conventional mortgages. Appraisals will be ordered via an appraisal management company–oddly similar to what Washington Mutual used before New York Attorney General Cuomo investigated. Although this is effective for loans delivered to Fannie/Freddie on May 1, 2009 or later, lenders will adopt the Code well in advance in order to be able to deliver compliant loans.
The good and the bad of the new appraisal guidelines…
- Appraisers and lenders have distance put between them creating less opportunities for lenders to push appraisers to “hit the number” (aka inflate the appraisal price to meet overvalued sales prices).***
- This will create decreased risk for lenders which will help keep interest rates lower (in theory)
***Fannie Mae amended their guidelines in January of this year allowing appraisal management companies to be owned by lenders. (?!)
- There’s a lot of them – just read Kenneth Harvey’s article in the Washington Post, “New Appraisal Rules Comes With Costs”
- Though many of the changes will directly and immediately affect appraisers and lenders, things will trickle down and may start negatively affecting consumers as well.