Charlotte Real Estate, Foreclosures, Short Sales

I've had a number of questions poised this month regarding financing for buyers. There are many industries across the country and globally struggling. FHA is the biggest buzz right now. Since 1934 the Federal Housing Administration has been helping people with income and credit challenges become homeowners. Now, this all important program for many of Americans is slated for big changes due to program coming under scrutiny as defaults on its loans climbed past 9 percent nationwide at the end of last year.

Previous FHA Guidelines

FHA has always been that "go-to" place for our buyers that have had financial challenges. Of course is not a "free" program, guidelines included

• Borrowers to have no foreclosures in the past three years, and no bankruptcies in the past two years.
• Current down payment requirement (cash investment) of 3.5 percent
• FHA loan limits as low as $271,050 in low cost areas and as high as $729,750 in high cost areas. See area limits here. 

FHA also has adjustable rate mortgages to help homeowners transition into homeownership.

New and Proposed FHA Guidelines

There was not a magic credit score number needed and allowed seller paid concessions/closing costs were always a big plus for first time homebuyers. We are now seeing changes to the credit score requirements. This year the organization raised that amount to 10 percent for borrowers who had a FICO score lower than 580 in order to protect its financial reserves.

Guidelines for the government-backed loans have traditionally allowed sellers to offer as much as 6 percent in concessions. New rules would cap that at 3 percent.

Reports have shown that borrowers who received more than 3 percent in seller concessions had a significantly higher risk of losing their homes than buyers who received less. Changes are expected this summer. "This proposed cap will not only align FHA's single-family mortgage insurance programs to industry practice, but will help ensure that borrowers who rely on FHA-insured financing have sufficient investment in their home purchases," the FHA commissioner wrote.

An already significant change that greatly affected closing costs for buyers was the raise in upfront insurance premium buyers paid from 2.25 percent from 1.75 percent.

Getting in Position to Buy

The best way to get into position to buy is to know which credit programs are available based on your current credit profile and income.  We are always, always speaking with loan officers each week about new programs that aren't main stream, but can get a buyer into a home loan at a lower interest rate without strict underwriting guidelines.  There are many companies offering programs to fix your credit report, fix bad credit, fix credit problems, etc.., but many of these "fixes" are under your control.

My next post will focus on credit repair and things many of our buyers are doing while looking for a home to increase their chances of getting a loan approval at a competitive interest rate.

Sandra Allen (704) 502-4324
Realtor/Broker & Auctioneer 

Remember, first-time home buyers purchasing a new or existing home are eligible for the tax credit. The guidelines of the tax credit specify that the home purchase must occur on or after January 1, 2009 and on or before April 30, 2010. The law also states that a closing (transfer of title to the property) occurning by June 30.2010 can qualify provided that there is a binding sales contract in force by April 30, 2010.

What does that mean to you as a buyer? Act now! There are many homes on the market. Many of them are foreclosures and short sale opportunities. Negotiation for foreclosures and short sales can take many weeks to finalize as they are subject to multiple levels of approval. We list foreclosures and short sales and can help you find a great home before the April 30th deadline.

Remember, home purchases in 2010 may be claimed on 2009 taxes or amended 2009 income tax returns. Don't miss out on your $8,000.00! There are distressed sellers, homes for auctions and foreclosures waiting for your purchase!

The Pick-A-Pay Loan. The Good, Bad and Ugly

Pick-a-payment loans can be high risk for some home buyers and a great way to manage cash flow for others. Pick-a-pay loans can potentially become negative amortization loans. Another name for these type loans are "Option Arms".
A Pick-a-Payment loan is designed to give the homeowner control over their mortgage payment. It consists of 4 different ways to make your payment:
Minimum Payment
Interest Only - The homeowner can defer making payment on the principal of the loan.
Full Amortization - Principal and interest payment based on a 15 or 30-year payment schedule.
15 Year Payment Option

Important questions to ask the lender include:

1. How long is the initial start rate fixed for?
2. What type of Index is used for the initial rate?
COFI - Cost of Funds Index. The index represents a weighted average cost of funds and includes long-term accounts.
Because it is an average, it doesn't move very fast. This protects the interest rate of a COFI loan from fluctuating
quickly.

CODI - Certificate of Deposit Index - A CODI loan is based on one of the most stable indexes currently available. It is
the aggregate sum of what banks are paying to their depositors on their 3-month CD accounts
MTA - Monthly Treasury Index. The MTA is relatively slow moving index based on the 12 month average of the
monthly average yields on U.S.Treasury Securities adjusted to a constant maturity of one year.

3. What is the margin?  Margin Plus Index Equals Fully Indexed Rate.

4. Is there a pre-payment penalty?

The flexibility of this type of loan can often get people into trouble.  Negative amortization can occur when a lot of minimum payments are paid and the loan amount increases.  Some studies have suggested that more than half of option ARMs borrowers are making only the minimum payments, says Glenn Costello, managing director for Fitch Ratings, a debt-rating agency.

In markets of declining home values and with the commission charged to sell your home, a homeowner can be forced to bring money to the closing table to sell a home with an Option Arm.   It can also be a precursor to foreclosure for homeowners unable to handle rising indexes associated with the mortgage

Wachovia's Fixed Payment Option

Wachovia Mortgage and World Savings have teamed up to offer a fixed payment option.  You can enjoy the flexibility of choosing a different payment each month while also having the option to enjoy the predictability of a fixed mortgage.  The homeowner needs to fully understand the repercussions of alternating between the different types of payments and how it will ultimately affect your bottom line.

Now is the perfect time to purchase a home while interest rates are still historically low.  I understand that mortgage talk can seem taboo to some and even more of a confusing topic than ever before.  While there are lots of fast talking, unscrupulous lenders still waiting to prey on unsuspecting borrowers, there are lots of helpful, ethical loan officers looking to help borrowers make the right decisions with their loan product choice.

Are Interest-Only Loans Really That Evil?

Today I will touch on interest only loans.  Many of my past clients who have purchased Charlotte real estate and homes in the surrounding areas opted for interest-only loans.  Why?  It was easy to calculate payments and "the lower, the better".  Real estate economist predicted "good times" and high percentages of appreciation in many major cities.  Get an interest-only loan, ride the appreciation wave, save extra money each money and if need be, refinance in a few years.  It worked for some, but not for all.  I still like interest-only loans.

I like interest-only loans because I like choice.  I like a few other loans, because I like choice.  Okay, you may say I have an advantage because I work in the real estate and mortgage field and the average borrower is confused by choice.  That may be true, but having the right loan officer who properly educates you on choice is better in my opinion than going for a one-size fits all loan that may not be the right loan for you.  It's all about shopping for the right loan officer, then the right loan.

As a grown-up I would like to have the choice of picking my own loan product.  A 30-year fixed loan may or may not work for me, but I want the choice of making the right financial decisions. That is attractive to me.

The bottom line is, property will lose value REGARDLESS of the loan product.  If your home depreciates due to market conditions, you have less skin in the game with an interst-only and more funds for emergencies that arise in a changing economy.  A lender will be less likely to foreclose on a property if you owe more because the lender will have a greater loss.  They will be more inclined to work with you with for forbearance and other payment arrangement plans.

If you woud like a free consultation and current mortgage information, inquire here and we will be in contact with you within 24 hours.

Sandra Allen is a licensed real estate broker and licensed loan officer.