Home buyer savings account?

Maryland first-time home buyers may soon have another program to help them buy a home.  Two related bills are making their way through the Maryland General Assembly to create a first-time home buyer savings account. If enacted, Maryland would join a handful of other states that have already enacted such programs to incentivize home buying.

home buyer savings account
Home buyer Savings Account (infographic from realtormag.realtor.org)

The bills are an effort to address the lack of first-time home buyer participation in the housing market. The lack of first-time home buyer participation has received a lot of attention since the Great Recession. Not just because of the rising costs of buying a home, but also because of the lack of home buyer savings. The lack of down payment was identified by the National Association of Realtors as one of the issues barring first-time home buyers from entering the housing market. The October 18th 2016 NAR news release (Five Notable Nuggets from NAR’s Home Buyer and Sellers Survey’s 35-Year History; realtor.org) also cited underemployment, student debt, and delayed family formation.

The idea of a home buyer savings account is not new. It was first conceived by Montana in the 1990’s as an incentive for home buyers to save money for down payment and closing costs. Virginia was the second state to enact a similar program in 2014. Several other states have since enacted similar plans, while others (including Maryland) have proposed such plans in their respective state legislatures.

The increased attention to first-time home buyer savings account during 2017 has made it a hot topic. While states are looking to provide state tax breaks for first-time home buyers, Rep. Mike Coffman of Colorado wants to provide federal tax incentives to first-time home buyers for saving down payment and closing costs. H.R.2802 First-Time Homebuyer Savings Account Act of 2017 was introduced in Congress last June by Rep. Mike Coffman of Colorado, and co-sponsored by Rep. Sean Patrick Maloney and Rep. Barbara Comstock. The bill has yet to make it out of the House Ways and Means Committee.

Rep Coffman stated in a press release:

The American dream of homeownership is getting harder and harder to attain for those starting out on their own these days, especially Millennials, because of the challenges involved in saving up for the down payment…The First-Time Homebuyer Savings Account Act  is a straightforward and bipartisan solution to this problem. If we can help Millennials attain homeownership, this would not only be a wise financial move for them, but would have broader positive financial impact for our economy as a whole

Maryland’s proposed first-time home buyer savings plan, introduced by HB0463 and SB0972, is currently being debated in the Maryland General Assembly. If enacted as introduced, the legislation would allow $50,000 to be deposited “state tax free” into an account for the purpose of buying a home in Maryland by a first-time home buyer. Any interest earned up to $150,000 would also be state tax free, as long as the interest is also used in said purchase. However, if the funds and interest are used for any other purpose, the holder of the account would be subject to state tax and penalties.

Would a first-time home buyer savings account stimulate interest in the housing market?

Lisa Prevost, writing for the New York Times, brought attention to Montana’s struggle to get first-time home buyers to participate in their savings plan (Tax Free Accounts for Homes: nytimes.com; August 8, 2013). At the time of Prevost’s article, the Montana Department of Revenue reported that “…no more than 225 people, and as few as 125, have participated annually since the program’s inception. Their annual deposits have averaged around $400,000.” Edmund Caplis, director of tax policy and research for Montana’s Department of Revenue, was quoted in the article as saying, “What you’ve got to understand is, this is people trying to get into their first home. For most working families, trying to pull together an extra buck is a stretch.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Mortgage lender shell game

mortgage lender
How to choose a mortgage lender (infographic from consumerfinance.gov)

Realtors and other real estate professionals eagerly look forward to the annual Profile of Home Buyers and Sellers.  The Profile, published by the National Association of Realtors, provides insight into the preferences and decisions of home buyers and sellers. After thirty-five years of publication, the Profile has become somewhat of an important contribution to housing trends and economics.  But did you know that the mortgage lender and the mortgage industry has a survey of their own?

The National Mortgage Database (NMDB) is a multiyear project conducted by the Federal Housing Finance Agency (fhfa.gov) and the Consumer Financial Protection Bureau (consumerfinance.gov).  The NMDB project incorporates two consumer surveys, the National Survey of Mortgage Originations and the American Survey of Mortgage Borrowers.  The NMDB is meant to provide statutory guidance and lending policy direction.  The database has yielded interesting data about how and why borrowers choose their mortgage lender, as well as their experiences and interactions during the mortgage process.

The NMDB has produced a colossal amount of data across many aspects of the consumer-mortgage lender relationship.  The preliminary analysis indicated that consumers don’t really shop for a lender.  Many home buyers use the mortgage lender recommended by their agents and others.  Most notable is that about half of the home buyers surveyed only considered one mortgage lender.  Not a surprise is that the small percentage of home buyers who apply to more than one lender are typically motivated by better terms (such as interest rate).

The mortgage lender is an important aspect of the home buying process.  Unfortunately, the NMDB suggests that home buyers are not doing their homework, and possibly choosing their mortgage lenders for the wrong reasons.  The mortgage process is an intricate dance between the buyer, the loan officer/processor and the underwriter.  The mortgage lender can either provide a smooth and “stress free” closing, or a bumpy process that can cause anxiety and delays.

When you’re buying a home, “time is of the essence” (it states that on the first paragraph of your contract).  Choosing the wrong lender can cause delays and potentially cost you money.  Issues can occur with any mortgage lender at any time during the mortgage process.  Problems can sometimes stem from the inexperience of the loan officer/processor, who does a poor job communicating what is needed from you.  More often, issues arise during the underwriting process because of a slow turnaround time.

Believe it or not, many mortgage lenders have their loan officers, processors, and underwriters separated in different offices.  Sometimes the different offices are located in different cities, which can add time to the process.  Sometimes. lenders have their processing and underwriting all in the same office, which helps facilitate communication and a loan approval.

As a home buyer, RESPA gives you the right to choose your mortgage lender.  The process of choosing the best lender for you should not be much different than choosing your Realtor.  Ask your agent and others whom you respect for referrals.  Do your homework and consider at least three of the referrals, if not more.

In addition to comparing interest rates, compare the lender fees.  Lender fees can vary and can add unnecessary cost to your closing.  Since you will be communicating with the loan officer and processor a great deal through the home buying process, talk to them to get a feel for how they interact with you.  Besides to asking about their company, ask the loan officer about their background and experience.  Find out how their underwriter operates and ask about the underwriting turnaround time.  And make sure the lender is licensed.  You can check a lender’s licensing by checking with the consumer portal of the Nationwide Multistate Licensing System  (also known also known as the Nationwide Mortgage Licensing System or the NMLS).

Original located at https://dankrell.com/blog/2017/12/15/mortgage-lender-shell-game/

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Blockchain, Bitcoin and real estate

blockchain
How will blockchain help the real estate transaction? (infographic from floridarealtors.org)

Is a Bitcoin mortgage in your future?  Probably not.  Mortgages will not be in Bitcoin in the near future.  But that doesn’t mean that the blockchain technology that underlies cryptocurrency won’t be making the real estate transaction cheaper and more efficient.

Brad Finkelstein reported on the difficulties of a Bitcoin mortgage (Virtually No Chance Soon for Any Bitcoin Denominated Mortgages; National Mortgage News, 2014).  Cryptocurrencies have a history of volatility, Bitcoin most recently lost about a third of its value (see: Bitcoin at crossroads after shedding more than $27 billion in value; marketwatch.com; September 14, 2017).  Instability of the currency is a major issue for a thirty-year mortgage.  Finkelstein stated that such short-term losses could cause the mortgage holder to “lose their shorts,” and cause the borrower to default.  He also pointed out that regulatory hurdles will be difficult to transcend, stating that mortgage rules and closing disclosures are calculated in dollars.  Not to mention the difficulty of appraising a home’s value in Bitcoin.  Additionally, all parties that are part of the transaction (such as appraisers) need to accept payment in Bitcoin.

Finkelstein also pointed out other cryptocurrency flaws.  Unlike currencies such as the euro or yen, cryptocurrencies are not backed by a government that guarantee an exchange rate.  Because of the lack of government backing, cryptocurrency values are easily manipulated.  Cryptocurrencies have also been associated with illicit internet transactions.

Although cryptocurrency mortgages may not be feasible, Finkelstein noted that “cash” transactions conducted in Bitcoin is a possibility.  Luke Stangel reported on a Miami mansion recently listed for sale in Bitcoin (Brother, Can You Spare a Bitcoin? Miami Mansion Is Listed for About 1,400 Bitcoins; realtor.com; September 6, 2017).  Two real estate agents interviewed about the sale stated that some aspects of the transaction may still be traditional, such as an escrow being deposited as well as title transfer.  However, the transferred funds would be Bitcoin.

Stengel’s report suggested that the interest in conducting real estate deals in cryptocurrencies is to speed up the sales process and provide a secure transaction.  However, because of the associated processes that occur during a transaction, the timing of such a transaction may not differ much from any other cash transaction.  Security is another issue and can be debated as Bitcoin and other cryptocurrencies have had their share of hacking too.

With so many issues and hurdles, cryptocurrency on its own may not be the (immediate) future of real estate.  However, its underlying technology is of interest.  The technology that makes Bitcoin and other cryptocurrencies possible is called blockchain.

Blockchain technology has the potential to revolutionize the real estate transaction by reducing the time and cost needed for processing a mortgage and title.  Blockchain technology is essentially a chain of blocks.  Each block records and holds information.  When a block is recorded, it is encrypted and cannot be changed.  The recorded information can be currency (such as a Bitcoin transaction), records, contracts, etc.  The draw to blockchain is that it is decentralized, making it difficult to corrupt and easy to restore.  Additionally, retrieving information is much faster because the chain of information is essentially available at your fingertips.

Many are skeptical of blockchain technology.  Not so much because of its disruptive potential, but because it is not impervious to problems.  Some issues include security, cost and complexity.   A revealing critique of blockchain was written by Jason Bloomberg (Eight Reasons To Be Skeptical About Blockchain; forbes.com; May 31, 2017).

However, blockchain advocates still maintain that the technology provides ease of access and secure recording of blocks of information.  The touted benefits are claimed to decrease the time of the average real estate transaction, and reduce the cost to the consumer as well.

Original published at https://dankrell.com

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Improving home buyer credit scores

home buyer credit scores
Credit scores (infographic from visual.ly)

There’s been a lot of anticipation about the new credit scoring model by VantageScore (vantagescore.com).  It’s supposed to increase the availability of credit to many consumers.  Launching this fall, VantageScore 4.0 is touted to be a more accurate scoring system that uses trending data instead of “snapshots.”  This credit scoring system is also supposed to help those with limited credit, and incorporates the improved credit reporting standards included in the National Consumer Assistance Plan.  This and other new scoring systems have a lot of promise, but will improving home buyer credit scores help the mortgage process?

Let’s take a step back to see how home buyer credit scores reporting has evolved in recent years.  The National Consumer Assistance Plan (nationalconsumerassistanceplan.com) was launched in 2015 as a result of an agreement between the credit reporting agencies (Equifax, Experian, and TransUnion) and New York Attorney General Eric Schneiderman.  The agreement stemmed from Schneiderman’s investigation into the credit reporting agencies’ practices including (but not limited to) the accuracy of collected data, the practices in handling consumer disputes, and the reporting of medical debt.

The National Consumer Assistance Plan’s focus is to improve the consumer’s experience as well as increase data quality and accuracy.  Consumers will have increased information related to credit report disputes, including instructions on what to do if they’re dissatisfied with the result of their dispute.   Additionally, there is an “enhanced dispute resolution process” for fraud victims.

Among the many changes made by the National Consumer Assistance Plan to increase accuracy and quality of data includes: issuing consistent standards for those who report data to the credit agencies; medical debt won’t be reported during a 180-day waiting period so as to allow for insurance payments to catch up with billing; and the elimination of reporting of debts that were not contractual (such as parking tickets).

From The National Consumer Assistance Plan:

Consumers visiting www.annualcreditreport.com, the website that allows consumers to obtain a free credit report once a year will see expanded educational material.

Consumers who obtain their free annual credit report and dispute information resulting in modification of the disputed item will be able to obtain another free annual report without waiting a year.

Consumers who dispute items on their credit reports will receive additional information from the credit reporting agencies along with the results of their dispute, including a description of what they can do if they are not satisfied with the outcome of their dispute.

The credit reporting agencies (CRAs) are focusing on an enhanced dispute resolution process for victims of identity theft and fraud, as well as those who may have credit information belonging to another consumer on their file, commonly called a “mixed file.”

Medical debts won’t be reported until after a 180-day “waiting period” to allow insurance payments to be applied. The CRAs will also remove from credit reports previously reported medical collections that have been or are being paid by insurance.

Consistent standards will be reinforced by the credit bureaus to lenders and others that submit data for inclusion in a credit report (data furnishers).

Data furnishers will be prohibited from reporting authorized users without a date of birth and the CRAs will reject data that does not comply with this requirement.

The CRAs will eliminate the reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as traffic tickets or fines.

A multi-company working group of the nationwide consumer credit reporting companies has been formed to regularly review and help ensure consistency and uniformity in the data submitted by data furnishers for inclusion in a consumer’s credit report.

Recent credit reporting changes are sure to make an impact for home buyer credit scores.  But, you may still have impaired credit that would make it difficult for you to buy a home.  So how can you improve your home buying process?  Be proactive!

A credit report contains a lot of information about you.  It reveals your personal information, including where you’ve lived and worked.  It indicates the credit cards and other loans you have, and how you pay on them.  It may also include any collection activity against you, as well as bankruptcies, liens or judgements.  Know what’s being reported about you by obtaining your free annual credit report (annualcreditreport.com) and dispute discrepancies.  Successful disputes should improve your credit score.

However, if your home buyer credit scores are impaired as the result of poor habits, don’t despair.  You can improve your credit report and score on your own by creating “good” credit habits.  First: make sure you pay your bills on time.  Planning specific times each month to pay bills will make it hard to miss a payment.  Second: reducing credit card balances may improve your credit score.  And third: be mindful of how many credit cards you maintain.  Having too many credit cards could lower your credit score.  Also, be careful to not apply for too much credit at any given time, as these “inquiries” could lower your score as well.

To learn more how a credit report functions, affects you, and how improve your home buyer credit scores, visit the Consumer Financial Protection Bureau (consumerfinance.gov), the Federal Trade Commission (ftc.gov), and the Federal Deposit Insurance Corporation (FDIC.gov).

Original published at https://dankrell.com

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

First time home buyer assistance

home for sale

Are you a first time home buyer worried, overwhelmed, or intimidated by the process? You’re not alone.  First time home buyers have had the most difficulty getting back into the real estate market after the Great Recession.  Many would-be first time home buyers lack the financial resources, while others worry about the long term value.  However, there is probably no better time than now to buy your first home.

This is a first time home buyer market

first time home buyer
First time home buyer assistance (infographic from mgic.com)

You may be one of the many would-be first time home buyers who opted to continue to rent or live with their parents until the timing was right.  Many would-be home buyers did the same, as a 2106 Pew Research Center report pointed out the millennial housing trend that may be associated with the decline in the homeownership rate since the Great Recession (For First Time in Modern Era, Living With Parents Edges Out Other Living Arrangements for 18- to 34-Year-Olds; pewsocialtrends.org; May 24, 2016).  However, economic factors have significantly improved, and the housing market has stabilized.  So what’s holding you back?

Are you overwhelmed or intimidated by the home buying process?

First time home buyer
First time home buyer (infographic from keepingcurrentmatters.com)

Buying a home can seem intimidating, and overwhelming.  But it doesn’t have to be. On the Holmes and Rahe Stress Scale (Holmes & Rahe 1967), having a mortgage over $10,000 rates 31 (just above being foreclosed upon) and moving is rated as 20. This commonly used stress scale is cumulative, so the rating for buying a home is at least 51. However, being prepared can help you anticipate and deal with most circumstances that may arise.

Finding a professional and competent Realtor who will “be” with you throughout the process is highly important.  Of course, finding an agent whom you trust can be a process too.  It’s important to know your agent will be there for you, not only to answer questions and resolve your concerns, but to also represent your best interests.

What are your expectations?  Your home buying expectations are influenced by your experiences.  However you are also influenced by a combination of the media, relatives, friends, and co-workers.  Having very high and unrealistic expectations can not only increase your stress, but can but a wrench in the transaction before it starts. Discussing your expectations with your Realtor will determine if they are realistic or not.

Choosing your Realtor

Before deciding on the realtor you want to work with, informally talk to several about how they help first time home buyers.  Unfortunately, home buyer surveys (such as the annual National Association of Realtors Profile of Home Buyers and Sellers (nar.realtor)) suggest that the majority of home buyers and sellers typically hire the agent they first encountered.

Besides assisting in home searching and negotiating sales contracts, your agent should be by your side throughout the transaction.  Your agent should be available to you to help you maneuver the bumps and surprises that can derail your home purchase.

Even though you may not place an agent’s experience high in your list of agent characteristics,  a research study by Bennie Waller and Ali Jubran (“The Impact of Agent Experience on the Real Estate Transaction.” Journal of Housing Research 21, no. 1 (2012): 67-82) suggests otherwise.  They concluded that an experienced real estate agent can yield a better result than an agent with little or no experience.

Check your agent’s license.  Make sure your agent is a full time agent (meaning that the only job they have is selling real estate).  Don’t be shy about asking and calling your agent’s references.

First time home buyer down payment and closing cost assistance

If affordability, down payment and closing costs are a concern, apply for a first time home buyer assistance and/or grant program.  There are many programs available offered through local and state organizations. Your lender can help you find and apply to the programs for which you qualify.  Regular communication with your loan officer is important because the funding is limited annually and can quickly run out.

Locally, one of the mainstays for first time home buyer assistance is the Maryland Mortgage Program (mmp.maryland.gov).  The MMP is provided through the Maryland Department of Housing and Community Development, and funded by the Community Development Administration.  It is described as “…providing home loans and down payment assistance to Maryland’s working families to encourage responsible homeownership and build strong communities, working through a network of Maryland Mortgage Program lender organizations.”

MMP loans are just like other mortgages, except that they offer competitive rates and offer additional assistance in the form of Down Payment Assistance and Partner Match Programs (up to $8,500 from the Department and possibly more from partner organizations).  Some Partner Match programs offer homebuyer grants.  However, other Assistance programs are generally in the form of deferred, no-interest loans.

Combining Down Payment Assistance with a Partner Match program can significantly reduce the amount you need to buy your first home!  The Down Payment Assistance program is a loan of up to $5,000.  The loan is a zero-percent deferred loan, which is repaid when you pay off the main Maryland Mortgage Program mortgage when you refinance, or sell the home.

Department of Housing and Community Development has partnered with many organizations and employers that can provide you with additional assistance.  Your current employer may be a participant with the Partner Match program (check the Partner list at mmp.maryland.gov).  Local organizations also offer home buyer assistance (including the Moderately Priced Dwelling Unit Program) as well, such as the Housing Opportunities Commission (hocmc.org) and The City of Gaithersburg (gaithersburgmd.gov).

Original published at https://dankrell.com/blog/2017/07/09/first-time-home-buyer-assistance/

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.