Programs to Help Home Buyers

by Dan Krell (c) 2009.

Tempted by terrific deals but frustrated by lack of financing, many home buyers are holding back from jumping into the real estate market. However, home buyers who qualify for a mortgage find themselves held back because they do not have the funds for their down payment or closing costs. If you are considering a home purchase this spring but find that financing and personal funds are limited, a few options you may want to consider include the FHA mortgage, the Maryland Mortgage Program, and the American Dream Downpayment Initiative.

While conventional financing has been reduced by increasingly restrictive underwriting guidelines, the FHA mortgage has re-emerged and re-established itself as the mortgage of choice for many home buyers (HUD.gov). The FHA mortgage’s low down payment, flexible underwriting, and provisions for gift funds make it clear why it is a poplar way to finance home purchases:

First, even though the down payment requirement for the FHA mortgage increased to 3.5% last fall, it is still lower than most conventional mortgages. Compared to a 5% or 10% down payment conventional mortgage, a home buyer needs thousands less to purchase a home.

Second, if you experienced past credit problems you may find it increasingly difficult to qualify for a mortgage. However, FHA’s flexible underwriting allows home buyers to have had past credit issues with documented mitigating circumstances and sufficient re-established credit.

Lastly, if you are short on funds, the FHA mortgage will not only allow the seller to contribute up to 6% of the sales price towards your closing costs, a family member may gift you the amount you need for your down payment as well! Of course, the source of funds needs to be carefully documented, but the combination of seller assistance and family gift could allow you to purchase a home with very little money down.

Another home buyer program is the Maryland Mortgage Program (mmprogram.org), offered through the State of Maryland’s Community Development Administration. The Maryland Mortgage Program includes several programs, when combined, can also allow you to purchase a home with little money down. First, the program offers mortgages through Community Development Administration (CDA) financing, which feature fixed, low interest rates. Second, the program offers the House Keys 4 Employees program, which matches contributions from participating employers (up to $5,000). And third, the program offers grant assistance through CDA for down payment and closing costs (either 2% or 3% repayable grant).

A final home buyer resource is the American Dream Downpayment Initiative (ADDI) offered through the Montgomery County Department of Housing and Community Affairs. The program is a government subsidized down payment and closing cost program for first time homebuyers. Since funding is limited throughout the country, Montgomery County has specific eligibility guidelines.
Since each program may have specific eligibility requirements and funding limitations, you should check with the each program provider to see if you qualify; and although FHA guidelines are well established, you should check with your FHA lender for specific credit and underwriting requirements as you may find that many FHA lenders impose additional credit requirements and other limitations on top of the flexible FHA underwriting guidelines. Finally, because interest rates and fees vary from lender to lender, HUD recommends that you compare rates and lender fees.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of February 23, 2009. Copyright © 2009 Dan Krell

Another Try for Mortgage Modification

by Dan Krell, © 2009

As more and more home owners default on their mortgages, something must be done to soften the blow of the foreclosure tsunami facing America. Mortgage modification is one form of home owner assistance that has been attempted since the beginning of the recent crisis. As there are strict criteria for such assistance, it is clear that not all home owners can be helped by a mortgage modification.

A mortgage modification is when a mortgage servicer or lender changes the terms of a mortgage, usually to make repayment easier for the home owner. A modification may be in the form of a lower payment through an interest rate adjustment, lengthening the mortgage term, or both. Home owners who are at-risk of foreclosure will typically have their arrearages added to the principal and/or added to their monthly payment.

Although there are numerous media reports of loan services and lenders making mortgage modifications available to at-risk home owners, the results of voluntary mortgage modification attempts have been mixed. Many home owners’ requests for mortgage modifications from their mortgage servicers/lenders fell on deaf ears. Some home owners who were successful in modifying their mortgage found that their monthly payment increased when arrearages were applied to the new terms; and there are reports of home owners who are delinquent even after successfully modifying their mortgages.

The reason why mortgage modifications as whole have not been widely successful thus far is because of the complexity of the relationship of those involved. A majority of the mortgages that are at-risk are securitized instruments which have many investors (thousands in many cases), to which the servicers and lenders have a fiduciary responsibility. In order for the loan to be modified and meet their fiduciary roles, the servicer/lender would have to have all investors for each mortgage agree to the new terms. In many cases, the servicers and lenders are walking a tightrope balancing between mortgage losses and investor law suits.

Government efforts to make mortgage modifications available to home owners who meet criteria set by HOPE for Homeowners have not been successful, as reported by the National Association of Consumer Bankruptcy Attorneys (NACBA.com). In a December 2008 report, the NACBA stated that the HOPE for Homeowners modification program had a total of 312 applications and no modified mortgages. Additionally, the NACBA reported statistics that indicate voluntary mortgage modification has not benefited homeowners and advocates for judicial mortgage modification (also known as court supervised modification).

Critics voice dissention to judicial mortgage modification and government subsidized mortgage modifications citing concerns that these programs will not only fail to significantly lower foreclosure rates, but will have unintended affects as well. In addition to pointing out that majority of mortgages are not subject to modification (due to deaths, divorce, among other reasons), critics state mortgage interest rates will rise to cover future potential losses from these mortgage modification programs.

Home owners, mortgage servicers and lenders, as well as Wall Street investors are awaiting (with great anticipation) the details of new foreclosure prevention programs unveiled by the Obama Administration. It is unclear what effects the new mortgage modification programs will have on foreclosure rates and mortgage interest rates; however it is clear that modification programs will be only one feature of a total recovery plan.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of February 16, 2009. Copyright © 2009 Dan Krell.

Deterring and preventing home burglaries

by Dan Krell © 2009


Another sign of our troubled economy is the increase in incidents of crime. Unemployment and rising tensions can sometimes change behaviors in people who would otherwise be law abiding. Homes are being burgled by thieves who take what they can from garages, cars and homes; the thieves have also become brazen, as some have entered homes while the owners are inside.

Statistics reported by the National Burglar & Fire Alarm Association (NBFAA) indicate that a burglary occurs somewhere in the United States every 14.6 seconds. In about 84% of burglaries, the thief entered the victim’s home. Statistics from Pennsylvania indicated that 81% of break-ins occurred on the first floor; 34% of entries are through the front door. A Connecticut study reported that 12% of burglars entered through unlocked doors (alarm.org).

“Not to worry,” you say, you have a security system in your home. However, the NBFAA states that the security system is only part of the overall security plan. Home owners who rely solely on their security system for protection have higher incidents of break-ins than homeowners who use a combination of preventative measures and deterrents along with a security system.

Experts agree that burglars will spend about sixty seconds to break in to a home. If it takes longer than sixty seconds they move onto the next home; the longer it takes to break in, the higher the chance of being caught. Preventative measures will make it more difficult for someone to break into your home and increasing the chances of thwarting the criminal.

According to a pamphlet distributed by the Montgomery County Department of Police (“In Case of Burglary…Keeping Your Home and Family Safe”), the best way to protect your home and belongings is to secure your home. A simple way to begin securing your home is to lock your doors and windows. When you move into a new home, change the locks immediately. Keep ladders and tools out of site as burglars can use these items to get inside your home. Secure your shed and outbuildings with high quality locks.

Additional deterrents include interior and exterior lighting. A well lit exterior allows for easy identification of visitors as well as anyone attempting to break-in to your home. Motion sensors are often recommended so as to activate when people approach your home; these lights can also be set to activate when you are away. Having a monitored security system can be one of the most effective deterrents, but its efficacy is diminished if you do not activate the alarm.

If you plan to be away, security experts recommend identifying someone who can respond to emergencies that may occur in your home. Additional recommendations include stopping newspapers and mail service and having timed lights to give the appearance of someone occupying your home.

Many local police departments offer a free security survey of your home to help you identify areas in and around your home that are vulnerable to burglars. Security items often overlooked by home owners include: overgrown shrubs and trees that can offer burglars cover while attempting to break-in; unsecured sliding glass doors; unsecured garage doors; doors with inadequate locks and strike plates. Having your home surveyed doesn’t only increase crime deterrents, but it may also give you a little peace of mind.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of February 9, 2009. Copyright © 2009 Dan Krell.

Budgeting for home maintenance; the other housing crisis


by Dan Krell © 2009

Current economic conditions are creating another housing crisis. Even though credit is tight and savings are dwindling, don’t forgo regular home maintenance. Forgoing regular maintenance can not only possibly devalue your home, but also create larger problems that can potentially make your home unlivable.

Many first time home owners are surprised by the actual cost of home ownership. Some get caught in the trap of spending their savings to purchase their home without having any reserves for emergencies, let alone regular home maintenance. If regular home maintenance items are not attended to, these items can become expensive emergencies. For example, a small roof leak left unrepaired can wreak havoc on the roof, ceilings, and walls requiring extensive repairs, as well as the potential for mold.

Adding to the impending crisis is the fact that many home owners are so bogged down with debt that they cannot save enough money for regular maintenance items. A few years ago this wasn’t so much a problem because credit was easily available; qualifying for a home equity line of credit to pay for home repairs and renovations was easy. However, presently qualifying for a line of credit is difficult, let alone trying to keep one open.

Putting off home maintenance due to a clean home inspection may not be such a good idea. Having a home inspection can determine the overall condition of the home and give you some peace of mind when you purchase a home; but the inspection is limited. In fact the law governing Maryland home inspector licensure describes the limitations and exclusions of a home inspection as not being technically exhaustive and may not identify concealed conditions or latent defects. Additionally, a home inspector is not required to determine (among other items): the condition of systems or components that are not accessible; the remaining life of any system or component; the strength, adequacy, effectiveness, or efficiency of any system or component; any future failures of systems and components; compliance of the structure with applicable provisions of local ordinances, regulations, or codes; and the existence of any manufacturer’s recalls (COMAR 09.36.07.03).

Even new homes have maintenance requirements. Sometimes, poor craftsmanship or inadequate installation techniques necessitate repairs sooner rather than later.

Relying on your homeowner’s insurance to repair your home in case of a system or component failure may not be a good idea either as some insurance policies may limit damage/repair costs and/or not cover damages due to poorly maintained systems (insurance coverage varies; you should consult your insurance agent for clarifications to your policy).

If you haven’t yet budgeted for home maintenance- start today! Freddie Mac recommends having a “home audit” to assess the maintenance needs of your home. To meet regular and emergency maintenance needs, some experts recommend an annual savings of one to three percent of the home’s value. Planning ahead can make home maintenance easier as well allow you to make informed decisions to possibly lower your maintenance costs (FreddieMac.com).

A sign of a home owner facing financial challenges is often manifested by their home’s disrepair. Homes that fall into disrepair are an indication that the home owner is struggling. If you or a neighbor needs assistance to create a home maintenance budget, contact a local housing counseling agency.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of February 2, 2009. Copyright © 2009 Dan Krell.

Perfect storm of conditions provide bargains for homebuyers

by Dan Krell © 2009.

This week the National Association of Realtors (NAR) reported that national home sales of existing homes improved this past December! The 6.5% jump in sales and reduce inventories of listed homes across the country is certainly good news. However the overall sales volume for the year was reported as being 13.1% behind those of 2007. In fact, the NAR reports that the national volume of existing home sales for 2008 is the lowest since 1997 (NAR.org).

Locally, the trends are similar. The Greater Capital Association of Realtors (GCAAR) reports data compiled from the local multiple list service (Metropolitan Regional Information Systems, Inc.); the data indicate that single family home sales in Montgomery County for December 2008 increased 23% from the previous month, and inventories fell from previous months. However, the volume of local single family home sales was also behind the volume for 2007 (GCAAR.com).

Lower home prices combined with relatively low mortgage interest rates may have been the right formula for December’s sales volume increase. Housing experts attribute home sales volume increases across the country to bargain hunters looking for good buys, including foreclosures and short sales. In a January 26th press release, NAR chief economist Lawrence Yun, was reported to say that “home prices continue to fall significantly” and that home buyers are “taking advantage” of the lower prices (NAR.org). Home prices also fell in Montgomery County, as median single family home prices fell about 14% from last year to $435,000 (GCAAR.com).

Additionally, mortgage rates remain relatively low. Freddie Mac’s “Weekly Primary Mortgage Market Survey” reported that a 30 year fixed rate mortgage to be 5.12% for the week of January 22nd (up from the 4.96% reported the week before) (freddiemac.com). So although mortgage rates are a bit higher than the past two months, rates are still close to recent historic levels.

In addition to taking advantage of lower home prices and mortgage rates, home buyers are also taking advantage of the FHA mortgage, which allow them to structure their purchase favorably. The FHA mortgage (HUD.gov), allows a home buyer to purchase a home with a low down payment (3.5% down) as well as allowing the home seller to contribute up to 6% of the sales price to the buyer’s closing costs. Additionally, the higher FHA loan limits (Montgomery County has a FHA loan limit of $625,500 as of December 16, 2008) have allowed home buyers to seek these advantages in homes that previously would not have qualified for a FHA mortgage.

As an incentive, the home buyer tax credit of up to $7,500 has received mixed reviews from home buyers. The tax credit, originally set to expire on home purchases through July1, 2009, actually needs to be repaid. However, syndicated columnist Kenneth R. Harney reported earlier this week (January 25, 2009) that congress is looking into removing the repayment requirement of the tax credit; removing the repayment requirement could add to the perceived value of purchasing a home.

Although recent home sales figures seem like a shimmer of light in a dark tunnel, many remain cautiously optimistic. Many housing experts agree that the new Administration and Congress must act quickly if any planned stimulus is to affect the spring housing market. Regardless, the present market offers an unprecedented combination of bargains, mortgage rates, programs, and government incentives.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of January 26, 2009. Copyright © 2009 Dan Krell.