Effects of Government Shutdown 2013 to Real Estate

What is the government shutdown's impact on real estate?  What happens from today onward? 

National Association of Home Builders Chief Economist David Crowe said, "Spike in mortgage interest rates, along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation's debt limit, have caused builders and consumers to take pause".  He added, “However, interest rates remain near historic lows and we don’t expect the level of rates to have a major impact on sales and starts going forward. Once this government impasse is resolved we expect builder and consumer optimism will bounce back.” (Source: www.realtor.org)

According to realtor.com, Crowe's view seems to be the same as other industry observers.

The main impact of the government shutdown in the real estate industry was the difficulty in obtaining IRS 4506T (copy of tax returns) documents needed to close most borrowers' loans. 

Only USDA (United States Department of Agriculture) and Jumbo loans were greatly affected by the shutdown.  USDA loans were completely inaccessible to borrowers.  Jumbo loans, on the other hand, were requiring documentation from IRS.  But this should be back to normal within the next few weeks.  

Many lenders remained operational through the shutdown and still processing FHA loans.  There might be a slight backlog of approvals on the FHA's end, but there shouldn't be any significant delays.  

"Best advice is to buy a home at the current lower prices and historically low rates.  Rates will rise and property values will follow due to limited supply" advised Cal Haupt, Chief Executive Officer at Georgia-based Southeast Mortgage.

Government shutdown is the topic of the decade. Nobody really knows what will happen in the future.  Let's just keep our fingers crossed and hope for the best!

HOW TO SAVE ON CLOSING COSTS

Buying a home can already put a hole in your pocket and  paying for the closing costs can also be equally painful.  These fees must be paid (no matter what) to the lenders and other third parties such as title/escrow and insurance.

There are 2 types of closing costs. They are called recurring closing costs and non-recurring closing costs. Recurring closing costs are charges that must be paid more than once. On the other hand, non-recurring closing costs are once in a life time charges.

If you want to reduce the closing costs follow these advice:

1. Ask the seller if he/she could cover part of the closing costs as part of the transactions. The lowest amount that the seller can cover is 2% of the purchase price and the highest amount allowed is 9%.
2. Shop for closing costs. When looking for a lender, also make sure to look at their closing fee charges. Different lenders charge different closing fees. So, search for a lender with low rate and low fees - this could give you HUGE savings.
3. Read the contract carefully. Some lenders charge junk fees - and you don't want to pay for those.
4. IF you close towards the end of the month, you can reduce the number of days of per diem interest due at closing. However, this can be a busy time for lenders and they might not close in time.

If you have more questions on closing costs, feel free to contact me.

FHA Needs $1.7 Billion Bailout

FHA (Federal Housing Administration), provider of mortgage insurance of low down payment loans, is asking the Congress for $1.7 Billion from the Treasury to stabilize its long-term finances and cover potential losses from loans they insured from 2007 - 2009.  FHA is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.

The amount is higher than the estimate since it is now insuring fewer loans than before. Additionally, Obama administration expected the bailout since April and has proposed $943 million budget for bailout fund by Sept 30, but the requested bailout was almost double the expected.

This is the first time since the agency's inception that it has required money from the government for its Mutual Mortgage Insurance Fund (MMIF). However, this bailout is so much less than the nearly $200 billion that the mortgage giants Fannie Mae and Freddie Mac required to stay in business during the housing bust.

Fannie Mae and Freddie Mac have recently posted record profits.

FHA Commissioner Carol Galante stressed that the agency does not need to pay claims at this point. It still has more than $30 billion in reserves. However, the law requires the agency to have enough reserves to pay off all claims over the next 30 years.

Big percentage of FHA losses (around $70 billion), were from loans originated from 2007 to 2009 and from its reverse programs.

For any question, please don't hesitate to contact me.

Ways to Fund Your Down Payment and Closing Costs

Afraid that you won't be able to find the funds you need for your down payment or the closing costs to buy a home? Think again! There just might be some ways to find it.

You can buy a home with a 3.5% down payment through FHA (Federal Housing Administration) loan.  For conventional loan, you are required to have at least 5% down on the purchase of a home.

There are at least 5 different ways you can come up with the down payment and closing costs so you can buy a home:

1. Gift Money

Gift of funds or gift money is a monetary gift that is given by a relative or a close friend. He/she must sign a gift letter, provide a copy of a bank statement showing that he/she is financially capable of gifting the down payment money and he/she must show proof that the funds came from and has been withdrawn from his or her account and deposited to your account.

2. Loan from 401 (k) or Retirement Fund

You can borrow funds from your 401(k).  If you borrow, just keep in mind that it will be considered a loan and the lender will include it in your total debt obligations and include the total monthly repayments in your total debt-to-income ratio. 

3.  Sale of a Personal Asset

You can sell your car, stamp or coin collection, jewelry, art or an RV or any other assets you may have and use the proceeds from the sale to purchase your new home.  Take note, that you need to provide proof of the transactions. 

4.  Trust Funds, Lottery Winnings etc.

If you receive money from your trust funds, lottery wins or other means, you can use this money as a down payment and/or closing costs on the purchase of a home.

Again, all paper trails must be presented.

5.  Loans Made Against Assets

If you can secure your loan with an asset, then there's no problem in obtaining a loan as long as use these assets to secure your loan.  These assets can include stocks, bonds, mutual funds and real estate (separate from the property being purchased).

Funds borrowed from cash value of life insurance policies can also be used for down payment and closing costs. 

Consult with a mortgage lender if you will be receiving any funds to help you with the down payment and/or closing costs on the purchase of a home.  This will save you a HUGE amount of time and headache!

 

 

Loans Now Available To Previously Troubled Borrowers

FHA recently announced a new mortgage rule that will benefit borrowers that have experienced foreclosure, short sale, deed in lieu or bankruptcy.  In the new Back to Work - Extenuating Circumstance program, borrowers with a record of foreclosure, short sale, deed in lieu or bankruptcy will still be able to get a new FHA loan in 12 months instead of the standard three year waiting period.

For a borrower to qualify, they must prove that major economic event like job loss or at least 20% income reduction (for at least 6 months) was the main reason in losing their home.  Furthermore, borrowers will also need to prove that they have recovered from their situation and they must have a satisfactory credit score.  And lastly, potential borrowers will need to complete a one hour one-on-one housing counseling session.  BUT, borrower's MUST have a satisfactory credit score and in good standing prior to the said major economic event. 

Borrowers "MUST" satisfy the following criteria in a minimum of 12 months to be considered borrower with "SATISFACTORY CREDIT":

- No delinquency payments on rentals.
- No more than one 30-day late payment due to other creditors.
- No collection accounts/court records reporting (other than medical and/or identity theft)

Back-to-Work program is now available until September 30, 2016. Once the borrower qualifies the program, the same 3.5% minimum FHA required down payment will apply. Mortgage insurance and closing costs will also apply.

Reverse mortgages are ineligible for Back to Work program.  In reverse mortgage, the home owners can borrow money against the value of his or her home.  No repayment will be applied until the borrower dies or the home is sold.

However, even with the new Back to Work program, the final decision to lend the borrower is still up to the lender.  So, it is VERY important for the borrowers to prove that they can satisfy all requirements for them to be able to obtain a loan. 

If you want to fast-track your home ownership but has trouble in obtaining a loan because of your previous record, then I can help. Don't hesitate to call.

FHA, Bailout is Still a Possibility

As a result of the housing crash, private investors pulled out of the housing market.  FHA, the government mortgage insurer, helped stabilize the housing market.  Its market share increased to 25% from 3% market share during the boom. A lot of first time home buyers have turned to FHA to make home buying a possibility during the housing bust.  However, FHA's delinquency rate is still high at 8.22%, while the delinquency rate for all loans is at 5.88%.

It is hard for the low down payment market to get a loan without the help of the government.  The government helps make the availability of the capital on a large scale.  However, with mortgages getting more expensive, even with the help of FHA, home buyers may still have a difficult time afford a home of their own. And if the delinquency rate still goes up, then FHA might also need a bailout in the future.

If you're thinking of getting your new home, NOW is the time to act - before the rules get stricter and mortgage rates increase again. 

For more information on how to take advantage of the current market situation, please feel free to contact me.

The New 43% Loan Cap in Qualified Mortgage Rule

Getting approved for a mortgage loan has become so difficult as compared to few years back, prior to the housing collapse.  However, Federal regulators are issuing more new lending rules that could possibly make it harder for both existing and potential borrowers to obtain loans.  Effective January 10, 2014, Consumer Financial Protection Bureau (CFPB) will implement the new Qualified Mortgage (QM) Rule. The new QM rule will require new borrowers to have a debt-to-income ratio (DTI) not exceeding 43.

The new lending rules will limit potential borrowers from taking out a mortgage or refinancing an existing one that puts their overall household borrowing at more than 43% of their income. The Debt-to-income cap of 43% means that all the debt expenses (this includes total mortgage payment) do not exceed 43% of the borrower's gross income (income before taxes). That new debt cap also includes a wide swath of common forms of debt that count toward the total, including student loans, most fees and points related a home purchase, and property taxes. It also tightens rules on documentation, and lenders who improvise to give customers easier terms will be open to consumer lawsuits if the loans go bad. (Source: http://money.usnews.com/money/personal-finance/mutual-funds/articles/2013/08/20/fewer-easy-mortgages-under-us-consumer-agency-rules)

The following groups may be affected by the new Qualified Mortgage rule:

- First time home buyers, especially those who are carrying college loans.  College loans will be counted towards the 43% debt-to-income cap.
- Home owners that want to refinance but lost their equity due to the housing bust.
- Retirees with limited savings.

The new credit restrictions can result to a more expensive, harder-to-arrange loans or outright disapproval for qualified borrowers.

With mortgage interest rates on the rise, increase in house prices and combined that with tightening credit standards, how can a average Joe afford the American dream of owning his own house?

If you want to own your new home, NOW is the time to act! In 4 months, the new Qualified Mortgage rule will take effect and acquiring a home may be more expensive and more difficult by then. If you want to take advantage of the more relaxed rules and buy your new home, please feel free to contact me.