The Lending Coach

Coaching and teaching - many through the mortgage process and others on the field

Category: Housing Market (page 1 of 7)

Housing Affordability Still High – Even With Increasing Prices

Despite rising home prices, American housing is actually quite affordable – and now is really a good time to make that purchase.

Housing affordability is measured by comparing household income relative to the income needed to purchase a home.

According to the latest Real House Price Index from First American Title, today’s home buyers have “historically high levels of house-purchasing power.”

Read the entire article from Amy Yale at the Mortgage Reports here.

Affordability crisis ‘over-stated’

According to Mark Fleming, First American’s chief economist, “talk of an affordability crisis is over-stated.” In fact, consumer house-buying power – how much home someone can buy based on average income, interest rate and home price – is actually up over the year.

Ms. Yale in her article notes that home-buying power rose by nearly a full percent from November 2016 to November 2017.

And though real home prices increased 5 percent over the year, they’re still 37.7 percent below their 2006 peak. They’re also more than 16 percent below 2000’s numbers.

Because mortgage rates are lower than historical averages, home-buying power is up, according to First American’s Fleming.

“In fact, consumer house-buying power is 2.3 times higher than it was in 2000, almost two decades ago,” he said. “It’s also only 2.9 percent below the peak in July 2016. Because the long-run trend in mortgage interest rates has been downward, from a peak of 18 percent in 1981, the housing market has benefited from consistently increasing house-buying power”

He continues, “Home buyers today have historically high levels of house-purchasing power, and that’s one important reason why, even as unadjusted house price growth exceeds household income growth, the talk of an affordability crisis is over-stated for now.”

The Solution

One of the great underlying opportunities today is that buying a home is considerably cheaper than renting. Renters interested in reducing expenses and collecting tax benefits should absolutely talk to a mortgage lender prior to signing that next rental contract.

Contact me for more information, as it would be my pleasure to help!

5 Key Things to Know When Buying a Home

So, you have decided that it’s time to take that big step and are ready to buy a home. Good for you! But what’s next?

Before you hit the web and attempt to navigate all of those home listing websites, there are a few things you need to do first.

Here are five things you should know…so you don’t end up saying “I wish I would have known that before buying a home.” 

Know your credit score

Don’t rely on many of the free websites – they don’t use the same metrics to measure your FICO score. Contact your mortgage lender to help you with this step.

The credit score is a direct reflection of your credit history, which is a financial inventory of things you’ve paid for. Credit cards, past loans, government information are all sources that make up your history.

Other information includes the number of credit cards and loans you have and if you pay your bills on time.

Your chosen mortgage lender will help you understand what you need to work on to boost that credit score, if necessary – and in the end, land a more favorable loan.

Obtain a pre-approval

A pre-approval on a loan will give you an advantage when you start to look for that ideal home. You will know the exact loan amount for which you qualify, what your monthly payment will look like and how much taxes and insurance will be.

With a pre-qualification, the loan process will be smoother and your offer will be much stronger.

When pre-approved, your lender provides you with a letter confirming the specific loan amount you can expect to receive. Showing that pre-approval letter along with your offer when you find the home of your dreams will allow you to make the strongest possible offer.

Know the value of a real estate agent

Some home buyers may decide they want to enter the housing market without a real estate agent. They soon find that there is a lot that goes into the house hunting process – from the research, to the paperwork, to the negotiations, it is a long, tedious process.

A good real estate agent has a keen understanding about neighborhoods, recent sales and listings, trends, crime rates and schools. A real estate agent will find listings tailored to your needs and will understand the lending environment.

Most importantly, real estate agents will help you with price negotiations in the current market and protect you by looking out for your financial interest during the process.

It can’t be stressed enough how important the right agent can be!

Research your down payment options

The down payment hurdle you have to clear may be quite a bit lower than you think. Traditionally, lenders have asked for 20% down, but there are many, many low down payment options are available, especially to first-time buyers.

Mortgages guaranteed by the Federal Housing Administration, Department of Veterans Affairs or Department of Agriculture can be “no-to-low” down payment loans.

In fact, mortgages backed by the VA and the USDA — for those who qualify — usually don’t require a down payment at all. A funding fee is charged on VA loans, but even that can be rolled into your monthly loan payment.

FHA-backed loans are available with as little as 3.5% down. With that said, buyers will have to pay mortgage insurance to help lenders defray the costs of loans that default.

Conventional loans, which aren’t backed by the government, also offer low down payment programs to first-time buyers. In, fact, down payments of just 3% are common, especially if you are a first-time buyer.  Again, buyers really should reach out to lenders that understand these programs and how they work.

Do your home inspection early

Consider getting inspections on the home you are interested in done early after escrow starts to find out if there are repairs needed. This can be beneficial when trying to get a 30-day close.

Once the inspection has been competed, there is less chance at any delays later in the closing process. Many real estate agents are working with their buyers to get those inspections done earlier and earlier to avoid delays.

In Conclusion

Purchasing a new home isn’t necessarily an easy to understand or intuitive process….there really is a lot to wrap your head around when buying a home. Make sure you are aware of these things so you are prepared. And if you have questions, don’t hesitate to contact me!

Interest Rates in 2018 – Cause and Effect

There has been a slow increase in interest rates since September of 2017 – and a quicker jump in the last few weeks.  Bond markets haven’t seen pressures like this in over 4 years – and things are trending higher.

Many potential home buyers and investors are asking why – and what does the future hold?

First, let’s take a look at what the 10 year treasury note has done since September 2017. The 10-year Treasury note rate is the yield or rate of return, you get for investing in this note. The yield is important because it is a true benchmark, which guides other interest rates, especially mortgage rates.

Note the upward slope of the yield on the graph below…and mortgage rates have essentially followed:

OK – so we see the trend line.  So why has this happened?

Well, there are 3 main reasons – and all of them are pretty decent economic signs, as a matter of fact.

Increased Employment and Potential Inflationary Pressures

Many investors believe inflation is bound to tick up if the labor market continues to improve, and some market indicators suggest inflation expectations have been climbing in recent months.  This is a general reflection better economic data, rising energy prices and the passage of sweeping tax cuts.  Many think could provide a further boost to the economy – giving consumers more money at their disposal.

Rising inflation is a threat to government bond investors because it chips away at the purchasing power of their fixed interest payments. As mentioned earlier, the 10-year Treasury yield is watched particularly closely because it is a bedrock of global finance. It is key in influencing borrowing rates for consumers, businesses and state and local governments.

If positive labor and economic news keep pouring out (as most analysts believe things will continue  to improve), then the prospect of inflation will put pressure on bonds and interest rates.

‘Quantitative Tightening’ by the Federal Reserve

Between 2009 and 2014, the US Federal Reserve created $3.5 trillion during three phases of what was called “Quantitative Easing”.  It was the Federal Reserve’s response to help reduce the dramatic market swings created by the recession about 10 years ago.  It used that money to buy $3.5 trillion dollars worth of financial assets – principally government bonds and mortgage backed securities issued by the government-sponsored mortgage entities Fannie Mae and Freddie Mac.

When you really think about it, $3.5 trillion is a pretty large amount of money. When that much money is spent over a six-year period, it would no doubt change the price of anything, bond markets included.  By the way, this maneuver has generally been appreciated in the market and (at least at this time) appears to have been a success.

Well, the Federal Reserve has now begun to reduce its balance sheet as the necessity for investment has given way to the possibility of inflation. Over time, the plan is to reinvest less and less – as per the schedule reproduced in the table below – until such a time as it considers its balance sheet ‘normalized’.

Historically, when the bonds owned by the Fed mature, they simply reinvested the proceeds into new bonds.  It essentially keeps the size of the balance sheet stable, while having very little impact on the market. However, when quantitative tightening began in October of 2017, the Fed started slowing down these reinvestments, allowing its balance sheet to gradually shrink.

In theory, through unwinding its balance sheet slowly by just allowing the bonds it owns to mature, the Fed can attempt to mitigate the fear of what might happen to yields if it was to ever try and sell such a large amount of bonds directly.

Essentially, the Federal Reserve is changing the supply and demand curve and the result is a higher yield in the 10 year treasury note.

Stock Market Increases – Pressuring Bond Markets

Generally speaking, stock markets and bond markets move in different directions. Because both stocks and bonds compete for investment money at a fundamental level, most financial analysts believe that a strengthening equity (stock) market attracts funds away from bonds.

By all measures, 2017 was a stellar year for the stock market. As we enter a new year, experts are cautiously optimistic that stocks will continue their hot streak in 2018.

Stocks soared last year on excellent corporate profits and positive economic growth. The Dow Jones industrial average shot up by 25%, the S&P 500 grew by 19% and the Nasdaq index bested them both with a 28% gain.

There is clearly more evidence of excitement among investors in 2018. This has everything to do with a strengthening economy and record corporate revenues…and profits that that have been bolstered by the new tax law.

In the short run, rising equity values would tend to drive bond prices lower and bond yields higher than they otherwise might have been.

What It All Means

So, I think it is safe to say that we will continue to see pressures in the bond market and mortgage rates overall. These increases look to be gradual, but consistent.

With that said, home prices are increasing nationally at nearly 6%, so the increase in interest rate will be more than offset by the increasing value of one’s home! Now is a fantastic time to purchase. Contact me for more information, as it would by my privilege to help you.

2018 Housing Forecast – Sales and Appreciation

Now that 2018 is here, let’s take a look at what we can expect in the housing market.  Experts are predicting some positive shifts moving into 2018, including an ease in the housing inventory shortage.

The latest report from shows the market will begin to see more manageable increases in home prices and a modest acceleration of home sales. Analysts from the real estate listings website also predict Millennials will begin to increase their market share of homeownership in 2018.

Here’s the 2018 Housing Appreciation Forecast from the experts at the MBS Highway:

Here’s the forecast from the National Association of Realtors:

A few highlights:

Inventory shortages will drive the housing market

Low inventory will continue to push up home prices and potentially be a barrier for first-time homebuyers who struggle to save for a down payment.  With that said, many low-down payment programs will help this segment.

Many homeowners will remodel rather than sell

In addition to higher housing starts, some experts are saying more homeowners will sell their homes and partially alleviate low inventory issues.

Some homeowners, despite having high confidence about being in a seller’s market, will continue to stay put. Instead of buying a new home, homeowners will refinance and invest in remodeling efforts to make their current homes feel and look brand new.

Builders will turn their focus to entry-level homes

Economists have said over and over again that increased residential housing starts, especially at the starter home level, are the key to bringing home prices down.

Housing starts have been well below the 50-year average of 1.2 million, but many economists expect builders to finally hearken to the call of first-time and lower- to middle-income buyers yearning for more affordable options.

If you have more questions about getting into that new home in 2018, don’t hesitate to contact me, as it would be my privilege to help!


Down Payment Strategies for First-Time Home Buyers

For many would-be buyers, the down payment is the only thing keeping them from owning a home. Most have a good paying and consistent job – some are even working to pay down debt.

Right now, mortgage rates are still remarkably low, home prices have been increasing steadily, and rental rates are getting out-of-hand. 

With that said, it’s always best to first reach out to an experienced lender to find out more about the different options available.

Here’s a link to a great NerdWallet article from Hal Bundrick that outlines some strategies to break down this home buying barrier.

It doesn’t always take 20% down

If you’re a first-time home buyer, the down payment hurdle you have to clear may be quite a bit lower than you think. Traditionally, lenders have asked for 20% down, but there are many, many low down payment options are available, especially to first-time buyers.

Mortgages guaranteed by the Federal Housing Administration, Department of Veterans Affairs or Department of Agriculture can be “no-to-low” down payment loans.

In fact, mortgages backed by the VA and the USDA — for those who qualify — usually don’t require a down payment at all. A funding fee is charged on VA loans, but even that can be rolled into your monthly loan payment.

FHA-backed loans are available with as little as 3.5% down. With that said, buyers will have to pay mortgage insurance to help lenders defray the costs of loans that default.

Conventional loans, which aren’t backed by the government, also offer low down payment programs to first-time buyers. In, fact, down payments of just 3% are common, especially if you are a first-time buyer.  Again, buyers really should reach out to lenders that understand these programs and how they work.

Family down payment gifts

Getting help from family members might be another way to go.

If you’re getting a cash gift for down payment, you’ll want to be sure that you “receive” your cash gift properly. Should you receive your gift improperly, your lender is likely to reject your home loan application.

It’s imperative, therefore, that you follow the rules of cash-gifting for a home.

The down payment gift rules are (1) the gift must be documented with a formal “gift letter”; (2) a paper trail must be shown for the gifted monies as they move from the giver’s account to the home buyer’s account; and (3) the gift may not be a loan-in-disguise. Home buyers are permitted to accept up to 6% of a home’s purchase price in the form of a cash down payment gift.

Using retirement accounts

If you have a retirement funds set aside, you should be able to tap a portion of it to help with the down payment. Employer-sponsored 401(k) plans often allow for penalty-free hardship withdrawals or loans.

One option used by many with a 401k is to take out a loan. Generally, your loan can be up to $50,000 or half the value of the account, whichever is less. As long as you can handle the payments (and yes, you have to pay back this loan), this is usually a less expensive option than a straight withdrawal. Though you will pay interest, you won’t pay taxes or penalties on the loan amount.

Contact your 401(k) plan administrator to find out more.

A few things to know about 401k loans:

  • Since you’re incurring debt and will need to make monthly payments on the loan, your ability to get a mortgage may be affected.
  • The interest rate on 401k loans is generally about two points above the prime rate. The interest you pay, however, isn’t paid to the company – it goes into your 401k account.
  • Many plans give you only five years to repay the loan. In other words, if you borrow a large amount, the payments could be substantial.
  • If you leave your company, you may be required to pay back the outstanding balance within 60 to 90 days or be forced to take it as a hardship withdrawal. This means you’ll be hit with taxes and penalties on the amount you still owe.
  • If payments are deducted from your paycheck, the principal payments will not be taxed but the interest payments will. Since you’ll be taxed again on withdrawals during retirement, the interest payments will end up being double-taxed.

State and local down payment assistance

There are programs in every state, implemented by government agencies, nonprofits, foundations and even employers. Assistance can have a geographic focus as wide as the nation or as narrow as a city — all the way to hyper-local initiatives targeted as tightly as neighborhoods, and even house by house.

Down Payment Assistance (DPA) programs are designed to make new homes affordable for low to middle income buyers.  These mortgage programs can be used whether you are a first time buyer or fifth time buyer (unless there is a state specific program that sets its own rules).

In general, it’s good to keep in mind that many of these programs are government based.  Stipulations may be placed on your purchase like, a requirement that the unit remains owner-occupied or when you decide to sell the property or you may only be able to sell it to another qualified low to moderate-income buyer. Also, the interest rates for these programs are generally higher than other options.

Programs change often; they’re funded, defunded and sometimes re-funded.

Going old-school and saving

There’s always the spend-less-than-you-earn-and-save-it strategy to building a down payment fund.

More than likely, it may take a combination of strategies to get you into a home with a decent down payment — and still have a little left over to cover those unexpected home-ownership expenses. Make sure to reach out to me for more information!

Both Buyer and Seller Confidence Is Up: Now is a Great Time to Make That Home Purchase

Are you thinking of buying a home, but not sure if now is the right time to become a homeowner? It’s easy to dream about owning that new place….but it’s not always easy to know if your timing is on the mark.

The Data

New data shows rising confidence from buyers and sellers alike.

More players on either side of the residential real estate market feel that the time to act is now.

Knowing that many want to pull the trigger on a home purchase or sale can inspire others to do the same.

The link below is from Harvard University’s estimates for home prices in 2018 – I’d invite you to check it out…

Harvard University research: the future of home prices in 2018

Right now, it’s important to learn the facts about what you can afford and the mortgages available to you.

Find out more here from The Mortgage Reports and Erik Martin

Now IS the time, say 77 percent of Americans

Per Martin’s article, a recent survey by the National Association of Realtors (NAR) yielded some very interesting trends:

  • 77 percent of people feel that right now is a good time to buy a home; 48 percent believe this strongly
  • 62 percent of renters believe that now is a good time to purchase a home. That’s up from 52 percent tallied last quarter and 60 percent one year ago
  • 80 percent of respondents who currently own a home, those older than age 55, those with incomes in excess of $100,000, those who live in rural areas, and those in the South and Midwest think that now is a good time to buy a home
  • 78 percent think it’s currently a good time to sell a home. That’s up from 63 percent measured one year ago
  • Those owning in the West (83 percent) are most likely to believe that now is a good time to sell a home

Other reasons why confidence is up

The Mortgage Reports’ Martin also states that Robert Johnson, president/CEO of The American College of Financial Services, points out that there’s another reason people feel more confident about buying or selling today.

Image source: NAR and The Mortgage Reports

“They feel wealthier because the stock market has gone up over the past 10 years,” he says. “This gives them confidence that makes them believe now is a good time to buy or sell.”

Martin states that another factor is at play, too.

“Perhaps most significant for buyers is that interest rates have been near historically low levels for an extended period of time,” Johnson notes. “Many buyers fear that rates are likely to rise in the future. Thus, they believe that now is a good time to buy. They want to make a purchase before rates rise.”

A Call To Action

The news that more owners think now is a good time to sell should be music to the ears of would-be buyers.

“This could help loosen up inventory. It’s another reason to be optimistic, as housing supply continues to be tight in many markets,” says Jessica Lautz, the National Association of Realtors’ Managing Director.

She notes that many sellers will need to become buyers themselves after unloading their home. The fact that buyer confidence is up can make them feel more secure about selling and then purchasing.

Next Steps

To improve your chances of buying a home sooner, Lautz suggests a few tips.

“You want to get your DTI  — debt to income ratio — down,” she says. DTI is a your total amount of recurring monthly debt payments, including credit cards, student loans, auto loans and mortgages, versus your gross monthly income.

“Many lenders prefer a DTI lower than 43 percent. You can lower your DTI by increasing your income and reducing outstanding debt.

“Also, check your credit report and make sure there are no surprises there. Correct any errors you see,” says Lautz.

“Be sure to consult with experts you can trust. Ask your Realtor and mortgage professional about affordable loan programs in your local community you may be able to qualify for,” she adds.

Final to-dos

In addition, be patient and realistic.

“Don’t rush into any decision you’re not sure of,” cautions Lautz. “Buying a home takes time. Make sure you look at prospective neighborhoods carefully and expect to have competition for that perfect home.”

Lastly, be prepared to make sacrifices and compromises.

“We often find that recent successful home buyers have to compromise on one or more things, including location, price or size of the home,” she says.


The Top 7 First-Time Homebuyer Mistakes

Not Knowing Your Credit Score

The importance of your credit score in the mortgage process is super important. In most cases, this distinction will draw the line between owning a house and renting one.

Even if you have a near perfect sense of financial responsibility today, your credit past can come back to bite you. You will have a hard time getting a home loan if your recent record shows problems with on-time payments, or if there’s an error in your credit report.

It’s truly best to perform a credit check with your chosen lender before you move forward.

If you go ahead and apply for a mortgage without checking your credit score, you could end up doing a lot of searching for nothing and/or paying a lot more than you expected.


Not Obtaining Mortgage Pre-Qualification

Some people are anxious to shop for a house and want to do it quickly, before they are financially able to afford it.

If you have already started talking to sellers before sitting down with your mortgage lender, you are making a mistake. In fact, not many sellers will want to work with you if you promise them a certain amount and then can’t fulfill that promise.

To avoid any disappointments, it’s wise to have your home loan pre-approved first, then go ahead and look for a house to buy.


Failing to Budget for a Home Loan

As most people know, home ownership is almost always a cheaper alternative to renting in the long run. There are just so many benefits of owning a home, from historical appreciation to the tax benefits. With that said, in the beginning, it can be a bit pricier.

Therefore, it is important to budget for a home loan, beforehand. You need to determine whether your income can accommodate this expense or not.

If you find yourself unable to afford making monthly payments on your home loan, it would be a mistake to try to own a house at this time.


Overlooking the Home Resale Value

Remember, this home you are purchasing is considered an asset, and real estate has historically appreciated over time.

You should never overlook the resale value of the home you intend to purchase.

What you need to do is to ask yourself several questions such as: Will it be easy to sell this house? Might I be able to keep it and rent it if I want to upgrade later? Will this house appreciate over time if I decide to buy another one? Is it situated in a preferred neighborhood?

Settling on a Verbal Agreement

Many first time buyers can be a little too trusting. Just because you met the sellers and/or their agent and came to a verbal understanding does not mean a deal is in place. Misunderstandings are guaranteed to happen when agreements are made verbally.

With that said, make sure that you and the seller get everything down in writing to avoid future miscommunications and utilize a standard contract.

This way, you will have the legal high-ground should the seller fail to keep their word.



As much as it is unwise to rush into making a purchase, it is equally imprudent to take too long to decide if a particular property is right for you.

If you take too long to make a decision, another homebuyer will take advantage of your indecisiveness and buy that home that you’ve had your eye on, but didn’t make an offer.

Since market trends change from time to time, you could also find out that the house you took too long to buy has a new (and higher) price tag attached to it.


Forgetting the Costs Associated with Owning a Home

Remember, a home requires money to maintain. Its important to know that upkeep and maintenance costs don’t end on the day you finish your last mortgage payment.

It’s important that you prepare for other costs for maintaining a safe, comfortable, and secure home.

Also, there are other ancillary costs to plan for – such as association fees, insurance, taxes, utilities, maintenance and major/minor repairs, etc.


So, If you can avoid these pitfalls commonly made by first-time buyers, the home buying journey will be much, much easier and enjoyable.  Don’t hesitate to reach out to me for help, as I’ve helped countless first time buyers navigate this process!

Right Now Is A Bad Time To Be A Renter

I know this isn’t great news if you are not a homeowner, but this might be the worst time to be renting in the last 40 years.

The average monthly cost of rent nationwide takes up over 35% percent of American income, the highest cost burden recorded since the late 1970s.

As a matter of fact, the number of renters dedicating at least half of their income toward housing hit a record high of 11 million people in 2014, according to the annual State of the Nation’s Housing Report from the Joint Center for Housing Studies of Harvard University.


2015 and 2016 saw the biggest surge in new renters in history, according to the report, bringing the number of people living in rental units to around 110 million people — or about 36% of households.

Unfortunately, there’s still more bad news. Apartment vacancy rates have dropped so low that forecasters are predicting that rents could rise, on average, 4 to 6 percent this year. Interestingly, rents are rising faster than that in many metro areas even as overall inflation is running at little less than 2% annually.

The nationwide problem threatens to get worse before it gets better. Apartment builders are building more units, potentially creating supply that is beginning to crest. With that said, demand still exceeds the supply, especially for affordable housing.

The Solution

One of the great underlying opportunities here is that buying a home is considerably cheaper than renting. Renters interested in reducing expenses and collecting tax benefits should absolutely talk to a mortgage lender prior to signing that rental contract.

Mortgage underwriting guidelines have been slowly loosening and those that were denied for a mortgage last year may qualify this year.

At the very least, your mortgage lender can provide the guidance needed to make this your last year as a tenant. Whether your issue be credit score, how your income is calculated, student loan debt or other debt-to-income ratio issues, your lender can layout a roadmap for you to follow.

Here is a link for Advice for First Time Home Buyers. Read it over when you have a minute and see what’s in store!

Stick to the plan, the road-map, they provide and chances are you will be a homeowner by 2018. Your actions and commitment right now might just save you thousands every year.

How to Beat a Cash Offer with a Financing Bid

Once again, cash buyers are changing the real estate game. Many are investors getting back into the market looking for rental properties. They’ve unsettled the purchase market a bit by swooping in with cash offers and are giving families looking to buy homes via financing some stiff competition.

How can a loan-backed buyer separate themselves from multiple cash offers?

Interestingly, most of the homes these investors are snapping up are the ideal choices for first-time homebuyers. With that said, what possibilities are there for buyers looking to compete against all cash buyers?

Here are five things that I’ve seen help buyers win a loan-backed offer against an investor or cash buyer:

Make sure you have the right approval and right lender

A five-minute conversation with a lender that produces a generic pre-qualifying letter just won’t do in today’s market. Before you are even close to submitting that offer, have your loan pre-approved, contingent upon appraisal of the home’s value. Make sure you have an “automated underwriting approval” – and have your agent relay this to the seller. By doing this, you will be on the same level as cash buyers. The seller’s agent will see your approval ‘as good as cash.’

Work in close contact with your mortgage lender

As a buyer, take the time to know your lender well – and share your current situation honestly. Let them get to know you, too! Your lender is a super important part of this transaction, and as a quality partner will make sure you know exactly what you need to have to make a complete offer.

Have your lender reach out the seller’s agent

I’ve made many phone calls to selling agents (with the permission of the buyers, of course) to let them know the specifics about the borrowers and their qualifications. This phone call right after your offer can give the agent great peace-of-mind. It will bolster your position with the seller and let them know that your bid really is as good as cash.

Make sure your agent presents the seller with a clean contract

The last thing you want to give to the seller is a sloppy offer via the contract. It’s unprofessional and won’t represent you well. Not only that, it creates more work for the seller’s agent – which can and will be held against you. Look at it this way…if an agent is perplexed or slowed down by your contract offer, they’ll reject it and go on to the next one.

Offer slightly more than the listing price

One of the great things about your position as a financed buyer is that you can offer a bit more, and it won’t cost you all that much. For example, if you add $5,000 to your offer, it might cost you $5 to $15 more per month in your payment, depending on your interest rate. That might be a fantastic trade-off to get your dream home right now and separate you from that cash offer.

FHA Loans – Closing Costs and Down Payments

One of the reason FHA home loans are so popular is their low down payment requirement. As long as your credit score exceeds 579, you are eligible for 96.5 percent financing, with a 3.5 percent down payment.

The big question is….how much will your down payment and closing costs be?

Source: The Mortgage Reports – Gina Pogol

FHA Down Payment: Higher Is Better For Bad Credit

If your credit score is 580 or higher, your minimum down payment for FHA financing is 3.5 percent. If your FICO is between 500 and 579, you are eligible for financing with ten percent down.

Keep in mind that being eligible for financing is not the same as being approved for financing. You can apply, but very few people with the minimum scores get approved for FHA home loans. So if your credit score is marginal, consider coming in with a higher-than-required down payment.

With that said, with credit scores over 620, buyers should generally be OK regarding credit and FHA loans.

Down Payment Gifts

With FHA homes loans, you can get your entire down payment as a gift from friends or family. Your employer, church or other approved organization may also gift you down payment funds.

Gift funds must come with no expectation of repayment. The loan applicant must show that the giver intends the funds to be a gift, that the giver has the money to give, that the money has been transferred to the applicant, and that the funds did not come from an unapproved source.

If you’re lucky enough to be getting a gifted down payment, you’ll need to do the following:

  • Get a signed “gift letter” from the giver, indicating the amount of the gift, and that it is a gift with no expectation of repayment.
  • Document the transfer of funds into your account — a deposit receipt or account statement is good.
  • Get a copy of the most recent statement from the giver’s account, showing that there was money to give you.

The reason for all this documentation is making sure that the gift does not come from the seller, real estate agent, or anyone else who would benefit from your home purchase.

Help From Sellers

As noted above, you can’t get a down payment gift or loan from the home seller, or anyone else who might benefit from the transaction. However, you can get help with your closing costs from a motivated seller.

FHA loans allow sellers to cover closing costs up to six percent of your purchase price. That can mean lender fees, property taxes, homeowners insurance, escrow fees, and title insurance.

Naturally, this kind of help from sellers is not really free. If you want six percent of the sales price in concessions, you’ll have to pay six percent more than the price the buyer is willing to accept.

That’s okay, as long as the property will appraise at the higher price.

FHA Closing Costs

Closing costs for FHA loans are about the same as they are for conventional loans, with a couple exceptions.

  • The FHA home appraisal is a little more complicated than the standard appraisal, and it often costs about $50 more.
  • FHA requires an upfront mortgage insurance premium (MIP) of 1.75 percent of your loan amount. However, most borrowers wrap that charge into their loan amount.

If you wrap your FHA insurance into your loan amount, your mortgage starting balance looks like this:

  • $200,000 purchase with 3.5% down = $193,000 loan with $7,000 down
  • Add 1.75 percent of $193,000 = $3,378
  • Total loan amount: $196,378

Note that you can wrap the FHA MIP into your new loan amount, but not your other closing costs. When you refinance, if you have enough equity, you can wrap all your costs into the new loan.

Help From Your Lender

If your seller isn’t interested in covering your closing costs, your lender might be. Here’s how that works.

There are many ways to price a mortgage. For instance, here’s what you might see on a rate sheet for a 30-year fixed mortgage:

The rates with negative numbers have what’s called rebate pricing. That’s money that can be rebated to the borrower and used for things like closing costs.

So if you have a $100,000 loan with a three percent rebate (the 4.125 percent rate in the chart above), you get $3,000 from the lender to cover your closing costs.

How can lenders do this? They do it by offering you a higher interest rate in exchange for an upfront payment now. So, you’d get 3.75 percent if you paid the normal closing costs, while 4.125 percent would get you a three percent rebate. If you only keep your loan for a few years, you can come out ahead with rebate pricing.

Contact me to find out more about FHA pricing and options – it would be my privilege to help!


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