HUD has ruled on waiving the 90 day seasoning financing contingency for buyers. What does this mean?

Effective February 1st 2010, FHA/ HUD will not require that a seller of a property be on title for 90 days or more in order to sell the property to a borrower acquiring FHA financing. This is an incredible opportunity for the majority of buyers & sellers in today’s market.

Investment Properties, Flips, Foreclosures, Short Sales

This news is an important decision handed down by HUD as it propsed to dramatically assist the real estate market recovery.

FHA’s 90 Day Anti Flip Rule

Prior to HUD’s decision, HUD required that a seller had to hold onto the title of the property for a period of 90 days after settlement date. This has always affected an investor’s decision in accepting an offer made on the investment property by a FHA Approved Buyer. This will all change on February 1st for a temporary period of 1 year.

Below is an excerpt from the HUD website:

“In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.”

This great news obviously comes with some restrictions. However, they are minimal but important when looking at the new rule. REMEMBER, THIS IS FOR ONE (1) YEAR ONLY!! I anticpate that if it has the expected results, the rule may be extended for a longer period.

The New FHA 90 Day Flip Rules

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

•All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
•In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
•The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

You can learn more by visiting HUD’s site CLICK HERE

You’ve probably heard of closing costs. Any time you get a mortgage there are closing costs and fees associated with that mortgage. Here we’ll help you understand each one so that you can come prepared to the closing table.

Points are a good way to reduce your interest rate and the amount you pay for them is usually tax-deductible.*

Rates can go up one day and down the next. Whether you lock in your rate or float your rate depends on how much risk you can tolerate. When you’re done, find out what kind of home you can afford with our home affordability mortgage calculator

In addition to understanding all the mortgage options you have to choose from (your Mortgage Banker will help you with this), it’s good to know the costs associated with your mortgage ahead of time so you’re fully prepared for closing. Any costs will be paid upon closing your mortgage.

Purchase Points

Purchase points, also known as a “buy-down” or “discount points,” are an up-front fee paid to the lender at closing to buy-down or lower your interest rate over the life of the loan. Each point is equal to one percent of your total loan amount. If you have a $100,000 loan, one point would equal $1,000. The more points you buy, the lower your interest rate, but the more money you’ll need at closing.

How do you decide whether you should buy points and if so, how many? Well, the decision should be based on how long you plan on living in your home and what you can afford to pay each month toward your mortgage. If you plan on living in your home for more than five years, it’s probably a good idea to purchase points. The longer you live in your home, the more you can save on interest over the life of the loan. The more you read about the purpose of mortgage points; the better off you’ll be in your home loan process.

Interest Rate

When you get a mortgage, you are charged an interest rate – this is the rate which the lender charges you for using their money to buy a home. It determines how much your monthly payments will be. Generally speaking, the higher the interest rate, the higher your monthly payment.

Mortgage interest rates change constantly – daily, even hourly. If you speak to a lender and are quoted a specific interest rate, don’t assume you’ll necessarily get that rate when you close on your loan. Not unless you formally lock-in that rate with the lender – locking in an interest rate will guarantee you get your loan with a particular interest rate. Lenders will allow you to lock in for 15, 30, 45 or 60 days. But the longer you lock in, the more expensive it will be, since it’s more of a risk to lenders. Check out our “mortgage interest rate and payment calculator” to find out instantly how much a new home will cost each month.

Fees

There are typically always fees associated with getting a mortgage; these fees cover the cost of processing and underwriting the loan. These fees can include charges for ensuring the title to the home is free and clear; paying for a land survey; or paying for a home appraisal which gives you the estimated value of the property (lenders require an appraisal to close on your mortgage).

Deciding which mortgage to get may depend on what each lender does because different lenders may charge different amounts. Some may charge lesser closing fees to lure you in, but may charge you a higher interest rate, which means you, may pay more in the long run. But everyone has different needs – you may or may not be able to afford to pay more at closing and are willing to pay more over the long term.

Before it comes time to close, do your homework, make sure there are no hidden fees, and ask your lender lots of questions so that you understand all the costs involved with your mortgage. Talk to your mortgage banker about questions you have regarding closing costs, or check out the Guide to First-Time Home Buyers for a great, easy-to-understand deep dive into your experience at closing.

There are three basic types of mortgages: fixed rate, adjustable rate and interest-only. Each loan has advantages and disadvantages to it – make sure you choose the right one for your particular situation. Be sure to talk to an experienced home loan expert to fully understand all your options.

Now that you’ve found a home, you need to find a way to finance it. But how do you know what kind of mortgage you need to get? Well, traditional thinking says that you should always get a traditional 30-year amortizing fixed rate mortgage. But everyone has different needs and no lender should put everyone in a “one size fits all.”

These days, there are several mortgage loans that fit many different people for various reasons. But there are three basic types of mortgages that you should be aware of: fixed-rate, adjustable rate, and interest-only.

Fixed-Rate Mortgages

As the name suggests, a fixed-rate mortgage has a fixed interest rate over the life of the loan. They are commonly available as 15- and 30-year terms, though they are also available with 10-, 20-, 25-, and 40-year terms. Your loan balance is amortized over the life of the loan which means your payment is fixed for the life of the loan. So, for example, if you had a 30-year fixed-rate mortgage, you would make 360 equal principal and interest payments – one payment a month for 30 years-to pay off your loan.

The most obvious advantage to a fixed-rate mortgage is that your rate and payment never change. If you plan to stay in your home for 10 years or more, a 30-year fixed-rate mortgage might be right for you. But you might choose a different mortgage term depending on your goal. If your goal was to pay off your mortgage faster, you might choose a 10- or 15-year term. If you don’t plan on moving and wanted a lower payment than what a 30-year mortgage payment would offer, you might choose a 40-year term, since your payments would be lower as it is amortized over 40 years, rather than 30.

Adjustable Rate Mortgages (ARMs)

Adjustable rate mortgages are just that – mortgages with an adjustable interest rate. They are generally shorter-term than fixed-rate mortgages, usually with 1-, 3-, 5-, or 7-year terms, and offer lower interest rates than a fixed-rate mortgage. If you have an ARM, your interest rate is fixed for the first 1-, 3-, 5-, or 7-years. After that, your rate generally adjusts once a year within a two percent cap. It can adjust up or down, depending on the market.

Most Americans move out of their homes within seven to nine years. Adjustable rate mortgages can be very good if you know you’re going to move within that time period and are looking for a lower rate and payment.

However, this type of loan is a bit more of a gamble since your interest rate adjusts after the initial fixed years of the loan. So anyone who gets this loan should be more comfortable with risk, since you don’t know whether your rate will go up or down.

Download the Consumer Handbook on Adjustable Rate Mortgages.

Interest-Only Mortgages

“Interest-only” means that for a specified period of time during the loan, you are allowed to make payments that cover only the interest portion of your monthly mortgage payment. This can significantly lower your payment if your budget is tight for that month. However, you can add as much as you like to your payment and that amount will be applied toward your principal balance.

The concept of “interest-only payments” is more like a feature that comes with a loan, rather than a loan itself. Like buying a car with leather seats, you can get fixed-rate or adjustable rate mortgages with an interest-only payment. QL offers loans with an interest only period.

Interest-only loans can be greatly beneficial to people who value increased cash flow. You might want to shift the money you would be paying toward your principal balance toward something else – you might want to contribute more toward your 401k or pay off other bills for instance. It can also be a way to be able to afford a larger home when you know you can depend on an increased salary later on.

One myth about interest-only loans that seems to be circulating is the idea that you’re not building equity if you’re not paying anything toward your principal. This isn’t necessarily true since most homes tend to appreciate in value. So even though you’re not paying off principal, you’re still building equity through home appreciation.

Your particular circumstances and your financial goals are factors that should definitely drive which type of mortgage you choose. Having the right mortgage can greatly benefit you just as having the wrong one can cost you. Do your homework and talk to a mortgage banker to find out which loan is right for you.

What’s the difference between a pre-approval and a pre-qualification? Should you care? Yes!

Confused about what getting pre-qualified or pre-approved means? You’re not the only one. There’s a big difference between a mortgage pre-qualification, a pre-approval and an actual mortgage approval.

Getting Pre-Qualified for a Mortgage

Getting pre-qualified for a mortgage helps give you an idea of how much you might qualify to borrow. But since you have not actually applied for a loan, and the lender only has your word on your credit, income, assets and liabilities, a home loan or mortgage amount is not guaranteed. With a pre-qualification, no information has been verified. If you receive a letter from the lender, it may only state that you are likely to be approved for a mortgage.

A Better Solution

While it’s helpful to be pre-qualified for a home loan, it doesn’t always guarantee you’ll be approved for a loan. Our pre-approved mortgage is based on your real credit score, and really puts real estate agents and home sellers at ease. At the same time, you’re in control when making an offer to a seller. They’ll know you’re a serious buyer who’s ready and able to make a deal.

If you would like to learn more about the getting approved for a home loan, call us at (888) 724-7402  and talk to a Canto Team Home Loan Expert today.

UPDATE: FEDERAL HOUSING TAX CREDIT

Everyone’s talking about the $8,000 home loan tax credit for first-time home buyers that’s part of the new $787 Billion Stimulus Plan. The intention of the credit is to encourage home sales to help stabilize housing prices, minimize foreclosures and help the economy. This is great news for the personal economies of first-time buyers! Check out these tips on how to take advantage of this aspect of President Obama’s housing bailout plan.

Tip #1:

Think Twice! You May Be a First-Time Home Buyer and Not Even Know It!

Are you a first time home buyer? Before you answer, consider this: for the purpose of this tax credit, a first-time home buyer is defined as someone who has not owned their primary residence in the past three years! Translation: thousands more people qualify for the tax credit than meet the eye.

And the “primary residence” distinction is also important to note: this means that people who rent their primary residence and also own an investment property or vacation home could also get the credit for becoming owners of their residence.

Tip #2:

Start Shopping Now! Make the Tax Credit Part of Your Personal Housing Bailout Strategy.

Let’s face it; few people need cash more than someone who has moved into their first new house! How can you pass up on an infusion of cash like this, courtesy of Uncle Sam?

But the truth is, it takes time to buy a home. These’s the hunting itself (the excess of houses on the market is on your side!), the negotiations with the seller, and then the process of underwriting your loan that can last weeks. It makes sense to get all your ducks in a row. You don’t want to wait until the deadline is looming and feel pressured into making decisions.

Make the most of your negotiating power and your time by getting pre-approved and get ahead of the curve. You don’t want to miss out on this tax credit by dragging your feet!

Tip #3:

Keep the Money! How the New Tax Credit is Different from Last Year’s $7,500 First Time Home Buyer Tax Incentive.

Last year’s tax credit for first-time home buyers was $7,500, so this year’s $8,000 credit will give you an additional $500 (or up to 10% of the purchase price of your home – whichever is less).

But the biggest difference between the two is that last year’s tax credit had to be paid back over the next 15 years – making it more of an interest-free loan. This year’s tax credit is exactly that, a credit. The $8,000 doesn’t have to be paid back – at any time!

(And yes, sadly it’s true that those who purchased their first home in 2008 under the provisions of the former $7,500 credit won’t qualify for the upgraded plan!)

Tip #4:

Check Your W2s! Make Sure Your Income Can Qualify for the $8,000 First-Time Home Buyer Home Loans Tax Credit.

Not all first-time home buyers are instantly qualified. Adjusted gross income for single taxpayers must be below $75,000, and below $150,000 for dual-income families filing jointly. But it’s not all-or-nothing in this case. There’s also a reduced credit for single filers up to $90,000 and joint filers up to $180,000.

It’s also worth noting that the new tax credit includes home loans financed with state and local tax-exempt mortgage-revenue-bond programs — unlike last year’s tax incentive.

Tip #5:

Don’t Wait for Your money! Cash-in on the Credit before Tax Season!

As mentioned before, who needs money more than someone who just purchased a home?

Some people bought houses in early 2009, before the April 15th tax deadline. The government made provisions so that first-time home buyers who bought their home after January 1, 2009 could cash in on the tax credit with their 2008 return. This provision also currently applies to those who filed extensions to their 2008 taxes – they, too, can redeem their tax credit when filing their 2008 return before the extension deadline expires.

But did you know it’s possible at any time to amend your taxes? This means anyone purchasing a home between the qualifying dates of Jan. 1 and Dec. 1 of 2009 can file an amended 2008 tax return and receive a check just weeks after filing! Check with your tax advisor about how to file an amended return, or check out the IRS’s site for more information!

Tip #6:

Boost Your Karma! Help the Economy With the $8,000 First-time Home Buyer Tax Credit!

Of course the government hopes that encouraging more home sales will boost the economy by minimizing foreclosures. There’s no telling to what extent the tax credit may help the economy, but the National Association of Realtors projects that 300,000 more houses will sell during 2009 as a direct result of the new $8,000 home loans credit.

Just think: buying your first home now will not only benefit your personal finances, but you can also have the satisfaction of knowing you’re helping the economy! Everyone wins, and you can sleep more soundly at night — in your new house!

It’s clear that if you’re considering buying a home, there’s no better time than now.