Category: Mortgage (Page 52 of 61)

FHA Appraisals and Inspections

January 23, 2017 / Tom Bonetto

Appraisals are used by lenders to determine a property’s value to protect their own interest and the homebuyer’s investment. Interestingly, there are different types of home appraisals based on the type of financing used for the home, including conventional mortgage loan appraisals and Federal Housing Administration (FHA) appraisals.

If you are planning to use an FHA loan to buy a house, the property will have to be appraised by a HUD-approved home appraiser. This individual will determine the current market value of the property, and will also inspect it to ensure it meets HUD’s minimum property standards.

Conventional Mortgage Appraisals

Mortgage loans issued by private lenders like banks and credit unions are called “conventional loans”. The appraisals used for conventional mortgages are typically focused on the value of the home and property being appraised. Conventional mortgage appraisals use one of three valuation methods to determine a point of value.

During this process, the appraiser will look at comparable properties that have sold recently, in the same area as the one being purchased. They will also visit the “subject property” and evaluate it both inside and out. After this review process, the appraiser will write a report to detail his findings. It will include an estimated value of the home, as well as any required repairs.

The report will then be sent to the mortgage lender for review.

FHA Mortgage Appraisals

Because the FHA insures their mortgage on behalf of eligible borrowers, the FHA requires their home appraisal address certain factors of the home before granting financing. While the FHA orders an appraisal to protect their investment, the basic concept of these appraisals is that everything in the home functions as intended. For example, windows should close tightly and doors should lock properly.

FHA appraisals aim to ensure the home the FHA is insuring is safe and secure for its occupants.

When an FHA loan is being used, the appraiser has two objectives. The Department of Housing and Urban Development (HUD) requires the current market value be determined, as with any appraisal. But they also require a property inspection to make sure the home meets HUD’s minimum standards for health and safety. That’s what makes the FHA appraisal process unique.

Overview of FHA Appraisal Guidelines

According to the 2016 FHA appraisal guidelines, a licensed, HUD-approved home appraiser must appraise all properties being purchased with an FHA-insured mortgage loan.

At a minimum, the appraiser must complete the following steps:

Visually inspect the subject property both inside and out.
Take photos of the property to be included within the loan file. The photos must show the sides, front and rear of the home, as well as any value-adding improvements such as a pool or patio.
Take a photo of each comparable sale transaction that is being used to support the appraisal.
Obtain and provide a copy of a street map that shows the location of the property and each comparable sale used during the valuation.
Take photos that show the grade of the lot, if it’s a proposed construction.

What does an FHA Appraiser Looks for During an Inspection?

Certain things will be noted in an FHA appraisal, but due to the unique characteristics of each individual home, certain items may be subjective to the appraiser’s opinion. In general, FHA appraisals are meant to determine if everything is in working order, if there are any issues that present a safety or health concern, and if there are any issues that would affect the marketability of the home.

Here is a comprehensive list of what an FHA appraiser generally inspects during the appraisal of the home:

Utilities must be turned on to test the systems and appliances for functionality
Proper drainage must be found around the perimeter of the home
Active termite infections must be addressed and cured
Windows must open and close with no broken panes
No chipping, peeling or flaking paint on homes built before 1978 for danger of lead-based paint
No defective paint or bare wood for homes built after 1978
No dangling wires from missing fixtures
Smoke and carbon monoxide detectors must be present and meet local ordinances
Adequate water pressure and testing of both hot and cold water
Water heater must be in working order and meet local code requirements
Attic must have appropriate venting, no damage, no exposed or frayed wires, or sunlight beaming through
Crawlspaces must have no signs of standing water or foundation issues
Electrical outlets must be in working condition with appropriate cover plates
Firewall from the garage to the home should be intact
Roof should not be leaking and must have at least two years of economic life left. The FHA will not accept roofs with over three layers of existing roofing.

Making Repairs After the Inspection

There’s a common misconception that FHA appraisals are unnecessarily strict, and that any inspection “hits” will end your chances of getting a loan. This is incorrect, as most discrepancies are fully correctable. If they are corrected before the final inspection (when the appraiser follows up on the original list), the loan can still move forward.

In most cases, the only real issues that would prevent a closed sale are serious safety issues that cannot easily be corrected. An example would be a bedroom with no windows or doors, and therefore no egress in the event of a fire. Another example would be an older home with a deteriorated roof and holes in the floor. In both of these cases, the discrepancies create hazardous conditions and most likely cannot be quickly fixed.

In most cases, however, discrepancies can be resolved fairly easily — if the seller is willing to fix them. If the items are repaired or corrected to the appraiser’s satisfaction, the sale can move forward.

FHA standards are quite firm, but there may be instances when the appraiser must use their best individual judgment in how the spirit of FHA might apply. A home can also be rejected if the site is subject to hazards, environmental contaminants, or excessive noxious odors or noises affecting the safety and livability of the property.

Understanding Closing Costs

January 16, 2017 / Tom Bonetto

Closing Costs for Home Buyers

In addition to the down payment, you’ll also have to pay closing costs — miscellaneous fees charged by those involved with the home sale (such as your lender for processing the loan, the title company for handling the paperwork, a land surveyor, local government offices for recording the deed, etc.).

On average, homebuyers pay closing costs ranging from 2% to 5% of the purchase price. Unfortunately, this is only a ballpark figure, as there are many variables in each individual transaction. Many lenders will require that you apply for a loan prior to receiving a more precise estimate of closing costs; however, some lenders are more transparent with their available options and will do the necessary legwork to provide you a better idea of those costs.

The key factors in determining the closing costs you will pay include the loan program, your credit scores, the escrow and title company, the down payment, and any negotiated seller concessions. Let’s take a closer look at the typical closing costs paid by homebuyers.

What Are Closing Costs?

As mentioned previously, “closing costs” is a collective term for the various fees and charges you’ll encounter when buying a home. Some of these fees come from the lender and others come from third parties that are involved in the transaction, like home appraisers, homeowner associations (HOAs), and title companies.

The types of closing costs you pay will depend on the kind of loan you’re using, as well as other factors.

Typical closing costs include:

Fees relating to obtaining a credit report
Loan origination and processing fees
Home appraisal fees (though more often than not, they are paid in advance)
Discount points, which can be used to secure a lower mortgage rate
Title search and escrow service fees
Title insurance fees, to cover both the lender and the homebuyer
Mobile notary fees
Pre-paids: escrow deposits to cover first two months’ property taxes and homeowners insurance.
Recording fee paid to the city or county for recording the new land records.
HOA transfer fees

Again, these are just some of the typical closing costs for homebuyers. Depending on your situation, you might encounter additional costs that are not on this list – and some of these fees might not apply to your situation.

Finalizing Closing Costs

As mentioned previously, closing costs tend to average between 2% and 5% of the purchase price.

So, if you’re buying a house that costs $200,000, your closing costs might fall between $4,000 and $10,000 (on average). That’s a pretty wide range and isn’t something you can really use for planning purposes. That’s where the new Loan Estimate can give a much more detailed breakdown when you actually start the loan process.

Soon after you apply for your home loan, the lender will give you a document known as a Loan Estimate. This standardized, three-page document gives you a lot of important information about your new loan. Page 1 includes your loan amount, mortgage rate, and estimated monthly payments, as well as an estimate of your total closing costs. Page 2 provides an itemized breakdown of the various costs associated with your loan.

Discount Points and Lender Credits

There are other factors that can affect the amount paid at closing. For instance, consider the different scenarios below:

Borrower ‘1’ might decide to pay mortgage discount points in exchange for a lower interest rate.
Borrower ‘2’ might avoid paying points in order to reduce the upfront costs.
Borrower ‘3’ might forego the discount points and opt for a slightly higher rate, in order to get a lender credit to further reduce closing costs.

These choices could result in a difference of several thousand dollars in the amount these buyers pay to close their loans. That’s why it’s best to take the time to sit down with your mortgage lender so they can understand your situation and what’s most important to you, the borrower!

In closing, here’s a great tip – ask the seller to pay some of the closing costs. If you’re short on cash for the closing costs and can’t roll the closing costs into the mortgage, ask the seller if they’re willing to pay part of the closing costs. It’s not unusual for buyers to ask for this. Usually the worst that can happen is that they say no.

Disclaimer: Your closing costs could differ from the examples provided above, based on a number of factors – and the views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.

Shopping Mortgages – A Primer

January 3, 2017 / Tom Bonetto

Simply put, mortgage rates are the interest rates assigned to a home loan. These rates are actually based on the price of mortgage-backed securities (MBS), which are bonds backed by U.S. mortgages. These rates vary between conventional, FHA, VA, USDA, and jumbo loans – and by mortgage lender.

How Mortgage Rates Are Created

Mortgage rates are “made” based on bonds traded in the mortgage-backed securities (MBS) market. Similar to corporate bonds, mortgage-backed bonds trade all day, every day – and their pricing changes constantly.

In general, as the price of a mortgage-backed bond changes, so do mortgage rates. This is true for conventional mortgages backed by Fannie Mae and Freddie Mac mortgage bonds; and for FHA loans, VA loans and USDA loans, which are backed by Ginnie Mae mortgage bonds.

The price of a mortgage bond is based on supply and demand. All things equal, when Wall Street’s demand for mortgage bonds increases, mortgage bond prices rise, which causes mortgage rates to fall.

A large number of U.S. consumers research mortgage rates every day. Most just want a ballpark figure to help do the math on what buying a home would cost, or to see what a home refinance would look like.

Others need more details on particular mortgage rates – most importantly, when they’re close to making a decision about what to do next.

To everyone, though, getting a good, low rate should be a major focus. A mortgage is not something on which you want to overpay, as paying “too much” for the most valuable asset you own isn’t a great idea!

For an in-depth review of this process, check out Dan Green’s article at The Mortgage Reports for more….

How To Be A Good Mortgage Rate Shopper

Mortgage rates move randomly, and change with little or no advance warning. When you’re shopping for a mortgage, then, it’s important to know the nuances – and also to have a plan.

This means understanding that shopping for a mortgage rate is really about shopping for a mortgage rate and its associated closing costs. You can’t get one without the other.

A mortgage lender should never quote you a rate without telling you the fees that go with it – so pay attention when you get your quotes – because an extremely low rate means nothing if your closing costs are ridiculously high.

There are two ways to shop for mortgage rates, then.

1. You can shop for a particular mortgage rate that you want

2. You can shop for a particular closing cost that you want

Sure, you can try to shop for both at the same time, but why bother? Don’t get caught-up in the game of trying to have it both ways – because you can’t – and here’s why:

When you can isolate a single loan variable for comparison such as “cost” or “mortgage rate”, it’s really easy to know which mortgage lender is giving the best deal.

As an illustration, let’s say you want a rate of 5.00%. That’s your “fixed” variable. All you have to do, now, is to ask mortgage lender for their lowest closing costs, assuming a 5.00% rate.

Whichever lender offers the lowest costs is the lender with the best overall price.

Or, to work it the other way, let’s say you want a zero-closing cost mortgage. In this instance, closing costs are your fixed variable — they’re $0.

To find the best mortgage lender, then, simply ask each lender what the interest rate would be assuming no closing costs whatsoever.

The lender with the lowest rate is the lender you choose, providing they offer the service levels that will allow you to close the transaction on time! If you can’t close on time, that’s more out-of-pocket costs to you, the borrower.

Choosing The Right Lender

The best mortgage lenders will help you understand the complexities and help you choose the right mortgage for your circumstance.

Is it a low payment that you are looking for? Well, then paying a discount point or two will lower that interest rate and reduce your payment.

Are you a little short on cash for closing costs? Well, choosing a higher interest rate can give you that much needed closing credit that can offset some of those costs!

Again, make sure to reach out to the right lender and take the time to outline your current wants and needs.

Realities Facing Homeowners and Renters

December 26, 2016 / Tom Bonetto

Regardless of whether they rent or buy, folks will be paying more to do so, according to second quarter data released by the Census Bureau, which also shows the homeownership rate in the U.S. is at the lowest level in more than 50 years.

The percent of households that are owner-occupied, known as the homeownership rate, was 62.9 percent in the second quarter, the lowest since 1965. The rate is 0.5 percentage points lower than the second quarter of last year and 0.6 percentage points lower than the rate in the first quarter of 2016.

“Tight housing inventory from a lack of new construction continues to create affordability challenges, particularly at the lower end of the market,” Doug Duncan, Fannie Mae’s chief economist, notes in an economic outlook note.

Less for More

A chart from the Census Bureau shows how rental asking prices have continued to rise through the last two recessions. Meanwhile, home sale asking prices, which have been rising this year, are recovering from the major drop during the last recession.

The median asking rent for vacant units was $847 in the second quarter, according to the Census Bureau. The median asking sales price for vacant sale units was $164,500.

Median asking rent for vacant “for rent” units shown with gray bars that indicate when the economy was officially in a recession. (Source: U.S. Census Bureau, Current Population Survey/Housing Vacancy Survey)

More Households Forming

But overall household formation has been relatively steady, thanks to renters who are going out on their own, the Wall Street Journal points out. Renter-occupied housing units surged by 967,000 in the second quarter to 43.9 million units from 42.9 million units in the second quarter of last year.

Meanwhile, owner-occupied units fell by 22,000 units to 74.4 million units in the second quarter compared to the same period last year.

Homeownership rates were highest for older households. Occupants aged 65 and older had a homeownership rate of 77.9 percent. The rate was lowest for those under 35 years at 34.1 percent.

Older Millennials Looking to Buy

Whatever is holding back renters from buying, whether it’s fewer starter homes or incomes, preferences may change in the future, leading these renters to become buyers.

Between 2010 and 2012, homeownership rate gains stabilized for young adults through their late twenties and early thirties, and between 2012 and 2014 homeownership rate gains were larger than the increments for previous generations passing through the same age range during the housing bust, according to Fannie Mae’s Economic and Strategic Research Group.

Find out more from Fannie Mae’s Home Story here

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc

Why the Sudden Increase in Interest Rates?

December 6, 2016 / Tom Bonetto

I’ve been receiving a good number of questions from both buyers and agents regarding the movement in interest rates. Many have been asking why the relatively big increase over such a short time frame and what does the future hold?

I’ll try to give a brief synopsis and link to a few articles for those who want to take a deeper dive.

Inflation Fears

In essence, worries about higher inflation have been a main factor fueling the big bond market selloffs (which brings mortgage rates up) over the past month. The process accelerated after the U.S. election in early November. The reason: investors have bet that the prospect of expansive fiscal and economy policy from the new U.S. administration would lead to stronger growth and higher inflation.

Secondly, the Federal Reserve has strongly hinted that it will raise interest rates next week. Economic growth remains slow and steady, and inflation measures are relatively non-existent – but Fed officials are increasingly convinced that things are now good enough.

Their concerns about moving too soon are giving way to worries about waiting too long, and the possible inflationary pressures that come along with it.

The Fed would rather err on the side of caution rather then risk inflation.

Many argue that the more-than-likely rate increase is actually priced into the current market – and it was the election that brought it into focus sooner rather than later.

Here’s a look at the 10-year treasury yield (a very good directional marker to interest rates) over the last 6 months:

Notice that yields are nearly a full point higher that the summer lows.

Does that mean you missed the boat if you didn’t act in October? Hardly.

I wouldn’t be surprised to see rates continue to tick upward over the next 30 days, but I believe things will begin to normalize in 2017. As mentioned earlier, upward inflationary measures are not really there.

More importantly, when you look at mortgage rates right now versus historical averages, we are still WAY below the norms. This is really a great time to buy and borrow.

Here’s a funny story that can give some perspective on the current situation. When I married by beautiful bride nearly 25 years ago, I got an absolutely smoking deal on a loan for our condo. It really was unheard of at the time. The rate….9.5%. That’s right, anything under 10% back then was considered a steal.

For more:

Min Zeng from the Wall St. Journal does a fine job of analyzing the situation here

Binyamin Appelbaum and Kevin Granville of the New York Times talk about the upcoming interest rate increase here