FHA

Paid By The Seller

June 15, 2011 By Jon Griffith Leave a Comment

Yet another quick article that outlines one of the basics in buying a home.

When you buy a car, you also pay tax, license fees, document fees, and registration. These are all one-time costs. Some of them are paid up front, and some can be rolled into your loan.

The same goes for a house. When you purchase a home, the following out of pocket costs are the most common:

Downpayment – how much you can bring to the table to reduce the total loan amount.
Mortgage Insurance – a premium required when financing through an FHA loan paid up front.
Title Insurance – to insure your home has clear title when you purchase it. You don’t want some strange problem with the property down the line. Title makes sure that there are no cloudy issues to cause future problems.
Home Warranty – a policy that helps cover potential repairs on specific parts of your house.
Loan closing costs
HOA Transfer Fees
etc., etc.

The bottom line is this. When you buy property, you have to have something on hand to cover some of these costs. BUT, some of these costs can be covered by the seller.

In order to reduce the cash-out-of-pocket-burden, sometimes some of these costs can be paid for at closing out of the money that the seller is receiving. A typical transaction may include a percentage of the sales price towards closing costs. For instance, you could be purchasing an $80,000 condo with an FHA loan which requires only 3.5% down ($2,800) and you might ask for 3% of the purchase price to be paid towards closing costs by the seller.

It’s a negotiable component of the contract and it’s not always going to be acceptable by the seller, but at least it’s worth a shot. Either way, you should probably have the amount you’re asking for tucked away just in case the seller doesn’t agree.

Filed Under: Buying A Home Tagged With: FHA, home, house, property

When Can I Jump Back Into Homeownership Following a Distressed Sale?

May 24, 2011 By John Coats Leave a Comment

Have you lost your home to foreclosure or a short sale? If so, you may be wondering how long you have to wait to get back into homeownership. It all depends on a number of factors. First and foremost, it depends on how the property was lost.

If through a foreclosure, FHA and VA will provide financing once 3 years have passed provided credit has been re-established. Underwriters like to see 3 items of credit with 24 months of good payment history.

Conventional loans fall into 2 categories: Fannie Mae and Freddie Mac. Fannie Mae recently moved their waiting period following a foreclosure to 7 years! Freddie Mac’s required waiting period to finance a home following a foreclosure remains at 5 years.

If the home was sold through a short sale, the waiting period is only 2 years with Fannie Mae and Freddie Mac if there is a 20% down payment (4 years with a 10% down payment).

Now here is where it gets interesting. If there were extenuating circumstances that forced the short sale, FHA will finance directly after a short sale! If there are not extenuation circumstances, the waiting period for FHA reverts to the same 3 year waiting period as a foreclosure sale.

What is the definition of “extenuating circumstances”? The answer very subjective. The explanation must prove that there was no choice. For example, a person loses their job and they work in a specialized field. The only available job is in another city without a reasonable commute. The borrower is forced to sell while deeply underwater.

There are many cases where a borrower can qualify for a new mortgage while underwater on their existing loan. They must have a compelling reason for vacating the home. In addition, they must be able to qualify for both payments and have some cash reserves after the purchase. But it is a viable option for many.

One very important consideration: a short sale on a property in default 90 days or more is underwritten as a foreclosure!

The smart Realtor who is truly concerned for the seller takes into consideration the waiting period to finance again.

Filed Under: Buying A Home Tagged With: FHA, foreclosure, home, short sale

When Would I Be Ready to Buy an $80,000 Home?

March 18, 2011 By Jon Griffith 2 Comments

There are two answers to this.

Answer #1: As soon as you have $80,000 cash.

Answer #2: As soon as you can answer yes to all of the following questions.

Have I paid off all of my debt, including credit cards, student loans, auto loans and any other miscellaneous debts that I might have?
Do I have at least 3 to 6 months reserves to cover all expenses in my life based on the cost of owning the home?
If I calculate my living expenses, taking into account what it would cost me to own an $80,000 home (taxes, insurance, maintenance, HOA, etc,) would my total housing expenses be no more than 25 to 30% of my take-home pay?
Am I contributing 15% of my income to my retirement?
If I have children, am I contributing 15% of my income to their future education? (obviously not a concern if you don’t have children)
Above and beyond all that I’ve answered yes to, do I have 20% of the value of the home I’m looking for available for the down payment?

If you answered yes to all of those questions, then you’re probably going to retire a multi-millionaire cause you’re just smart like that. If you answered no to any of them, my advice would be to position yourself so the answers become yes. Reduce your costs, focus, live with financial intention, and make those conditions ring true so when you buy a house, it becomes a blessing, not a curse.

Is it an absolute rule to have all of these things in order? Well, I would say that it is best practice, but not required. However, you DO need to have money in the bank in order to purchase a home, because there ARE associated closing costs and not all of them are allowed to be paid by the seller, nor will every seller agree to pay them.

What about FHA?

FHA insured loans are an option, but they cost a bit more in the short and long run due to the requirement for mortgage insurance. When you buy a house, if you don’t put enough down, the lender will require that there be an insurance policy in the event you fail to pay and default on your loan. This usually runs in the $40-50/month range. FHA allows you to purchase a home with as little as 3.5% down. It’s actually the most popular loan product right now.

3.5% of $80,000.00 is $2,800.00, which is quite a big difference from $16,000 (20%).

So what’s it going to cost me every month to buy an $80,000 home?

Well, let’s assume you go FHA and you put $2,800 down. Your closing costs, including your down-payment would require you to have approximately $6,500 cash to close the deal, assuming you don’t ask the seller to help with closing costs. You’ll probably be able to negotiate 3% of the purchase price to be paid by the seller towards closing costs, which would reduce your cash required at closing, but for now, we’ll assume there will be no assistance.

So, cash at closing would be $6,500, give or take. Mortgage insurance will be $60/month. Your payment, based on a loan amount of $77,200 ($80,000 – $2,800) at 4.275% will be $581.70. And there’s one last thing. Property taxes. On an $80,000 property, you’re probably going to be assessed somewhere around $800 annually. That makes your monthly at $66.00.

Recap:

Purchase Price: $80,000.00
Down Payment: $2,800.00
Loan Amount: $77,200.00
Interest Rate: +/- 4.275%
Closing costs: +/- $3,700
Cash due at closing: +/- $6,500
Monthly Mortgage Payment: $581.70
Mortgage Insurance: $60.00/month
Taxes: $60.00/month

Total monthly payment: $701.70 for the first 27 months, after which the loan to value will be 80%, dropping your need for that $60/month insurance payment.

Total cost to own the home once it is paid off in 15 years? Approximately $118,000.00. With appreciation, your home would be valued at approximately $125,000.00. If you rent at $800/month for 15 years, you will spend $144,000 and have nothing to show for it.

The calculation I used to come to this conclusion included many variable factors. Not only did I include the mortgage amortization schedule, but I also accounted for an historical increase in value of approximately 3% annually, which will inevitably affect the amount you’re paying in property taxes, causing an adjustment to your payment annually. I also included the fact that after only 27 months, your monthly payment would go down by the amount of the mortgage insurance which was calculated based on .9% of your total loan, as is likely with FHA.

The moral of the story?

If you start now, when prices and rates are low, you can get yourself into a property that will help you build wealth in the future. How? Well, think about it. If you live frugally for 15 years (for many of you that puts you at about 40-50 years of age), not including increases to your income as you grow to help speed the process up, you will have a paid for house and you won’t have any idea what to do with all of that disposable income, other than give, save, and spend.

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Filed Under: Buying A Home Tagged With: cost, FHA, home, value

Dear FHA, Can You Please Sign Off?

September 30, 2009 By Jon Griffith 7 Comments

Dear, David H. Stevens, Margaret Burns, and Bonnie McCloskey,

Nothing is more infuriating than a policy within a company that cannot be explained other than “that’s the way we’ve always done it.”

Digital signatures save everyone time. A VERY LARGE AMOUNT OF TIME. But in a world where a vast majority of the buyers are going FHA, with a policy that doesn’t allow digital signatures, many lenders are slowing us all down by requiring pen to paper.

Here’s why pen to paper is a stupid idea. PHOTOSHOP. I can extract your signature and drop it into any document I want and pass it off as genuine and it instantly becomes legitimate. Not only can I do this, but I have done this, but only after receiving written permission to do so from my client. No funny business here.

It’s been my only solution to FHA’s antiquated practice of requiring pen to paper.

Digital signatures have been part of the business world since 2000 and they’re perfectly legal. There’s no reason we should be chasing people down, inconveniencing them, to acquire handwritten, less-than-secure forms of authentication. It’s just ludicrous.

So, FHA, please stop this horribly annoying practice and bring yourselves up to speed. We’re tired of the whole world moving faster than you, and you’re just getting further and further behind. Drop the dead weight. Loose the anchor. Run like the wind and allow services like @Docusign to usher us into a world that should have existed 9 years ago.

Sincerely,

Filed Under: Other Stuff Too Tagged With: digital signatures, docusign, FHA