Home Buyer Archives - Page 33 of 36 - Real Estate News and Commentary

March 8, 2012March 12, 2012

Buying a home when you’re short on cash

by Dan Krell ©2012
DanKrell.com

Given how the lending industry has changed, it’s easy to understand that you might think you need perfect credit and a 20% down payment to buy a home. Although credit requirements have been tightened, buying a home with little or no money is still possible.

Yes, it’s true that the financial and housing crisis forced banks and mortgage lenders to re-think the idea of easy money. Sure minimum credit scores have been raised to qualify for a mortgage, and you better believe that increased underwriting scrutiny and due diligence is the rule (rather than the exception). But, that doesn’t mean that you can’t get a mortgage if you don’t have a lot of cash. Depending on your situation, you may find yourself comparing conventional loans to FHA and VA.

Conventional mortgages have been traditionally thought of as requiring a 20% down payment; however, you may obtain a conventional loan with as little as a 5% down payment. The misconception that a conventional mortgage requires such a high down payment may have stemmed from the fact that you need a 20% down payment to circumvent private mortgage insurance. Additional confusion about conventional mortgages arises from the distinct programs that Fannie Mae and Freddie Mac offer for specific home buyers. For example, Fannie Mae offers a mortgage for as little as a 3% down payment through their “HomePath” financing– but this is only available to purchase Fannie Mae owned foreclosures.

Conventional financing typically allows you to receive financial assistance in the form of a gift and/or seller closing cost assistance. The documented gift must be from a relative. Although gift guidelines for some conventional programs have recently become more lenient; generally, you may be required to have a “minimum borrower contribution” (from your own funds) as your down payment decreases. However, a minimum borrower contribution may not be required if your down payment is 20% or more. Seller closing cost assistance may be limited depending on your down payment.

As conventional mortgage credit requirements became increasingly strict, more home buyers found that the FHA mortgage remained somewhat flexible. Certainly, buyers with credit dings found that FHA underwriting is more forgiving (provided borrowers provide substantiating documentation) than conventional; but another attraction to FHA financing is the low down payment. Although FHA increased the required minimum down payment- you may find that the current 3.5% down payment is still relatively low. Not having the 3.5% down payment does not have to deter you either; your down payment can be from a documented gift of funds. If you’re still short of funds, FHA allows the seller to assist with your closing costs (not to 6% of the sale price).

If you’re an eligible veteran or active duty service personnel, you may find that the VA offers a very good mortgage. As a benefit to your service, you could buy a home with no down payment (provided the purchase price does not exceed the VA appraisal of reasonable value and loan limits). Additionally, the VA allows the seller to pay your lender’s fees. Eligibility and other information can be checked on the VA website (www.benefits.va.gov/homeloans/veteran.asp).

Even though mortgage options exist, program guidelines change frequently- so check with your lender about qualifying. One final word: be prepared to document everything and follow your lender’s instructions.

More news and articles on “the Blog”
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 March 5, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

January 12, 2012November 11, 2012

Buying a home after a foreclosure or shortsale

by Dan Krell
© 2012
DanKrell.com

If you’ve been through tough financial times, you know that it feels as if your financial picture may never improve. But for most people, experiencing a financial challenge turns out to be just a blip in time; they eventually move on with their life. Given that notion, mortgage lenders know that people endure temporary financial problems through their lives- underwriting guidelines may allow for a past foreclosure, short-sale, or even bankruptcy.

In the old days (prior to desktop underwriting), underwriting was “manual,” meaning that a loan’s approval or denial was decided by a human who reviewed your file. If you were lucky enough to borrow from the local small neighborhood lender, there was a very good chance they knew you, your family, and your financial circumstances (much like the Bailey Building and Loan from “It’s a Wonderful Life”); you had a chance to provide explanations and compensating factors to increase your chance of being approved.

Today, mortgage underwriting is mostly accomplished through automated systems, such as “Desktop Underwriter” and “Loan Prospector.” The automated systems make decisions based on algorithms and do not have the ability to weigh circumstances for negative reports on a credit history. Some lenders may still provide manual underwriting, but borrower requirements have become increasingly strict (including higher minimum credit scores).

Take heart; you still may be able to get a mortgage after a foreclosure, short-sale, or bankruptcy.

For conventional mortgages underwritten with Fannie Mae guidelines, you’ll have to wait at least seven years after a foreclosure. Likewise, you’ll have to wait seven years after a short-sale- unless you can muster a large downpayment (you may be able to qualify: after two years with a 20% downpayment; and four years with a 10% downpayment)! You’ll have to wait four years after a chapter 7 bankruptcy is discharged; and two years after a chapter 13 is discharged (but four years if the chapter 13 is dismissed).

For FHA mortgages, you’ll have to wait at least three years after a foreclosure, two years after a chapter 7 bankruptcy discharge, and one year current on a chapter 13 payment plan (with court approval). A short-sale is differentiated depending if the loan was in default: if the loan was not in default at the time of the short-sale and your previous 12 months payments were timely, you may be eligible for a FHA mortgage; however if the loan was in default prior to short-sale, you will have to wait at least three years before you can qualify.

If you are eligible for VA financing, you will have to wait two years after a foreclosure, short-sale, and chapter 7 bankruptcy (one year into a chapter 13 payment plan with court approval). However, if your foreclosure or short-sale was on a VA mortgage, then your eligibility may be reduced.

If you’re financial issues were caused by circumstances beyond your control, you may be able to get an exception that could shorten the waiting periods. However, you’ll have to provide documentation for the underwriter to review, and not all lenders grant such exemptions.

There are many different mortgage programs, and underwriting guidelines vary. The timelines and requirements posted here are as of time of article; it’s very possible that these guidelines will or have changed. It’s important to talk to a licensed loan officer to know what you need to qualify, as well as which mortgage program will be best for your particular circumstances.

More news and articles on “the Blog”
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 9, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

March 25, 2011July 25, 2019

Are the kids are all right; how kids cope with moving

Buying and selling a home is surely an exciting time, but it’s also a stressful time. Even the most organized person can feel the pressure. Of course, most people tend to redirect their energy into the practical aspects of buying, selling, and moving; such as ensuring their loan documents are in order, packing, and/or lining up a mover. If you have children, then additional things to worry about may be added to your already full plate of “to do” items, such as school matriculation and finding summer camps. But how are your kids coping with the move?

Like most things in life, moving to a new home is a process; the emotional process of moving involves various feelings that are expressed in no specific order and can sometimes be felt simultaneously. To complicate matters, your reasons for moving can also amplify this stress (divorce, job, etc.). Most children and their parents cope adequately during this time, but some may need additional attention and assistance.

Once you realize how hectic the pace can be while home searching/selling combined with moving, your attention to your kids may be slightly different. Although your children can experience the same feelings you may feel, their expression of those feelings can be vastly different. Some children may not be able to verbalize their feelings and their coping skills can vary.

Change can elicit both welcome and unwelcome feelings. The excitement and anticipation of a new neighborhood and school, and the sadness of leaving friends behind are just some of the feelings that children may experience while going through the process of moving to a new home. However, some kids may be more affected than others by the stress of the process and may seem more anxious, angry, and/or exhibit other behaviors.

Because children do not articulate their feelings like adults, some experts recommend that you “tune” into your children to determine how well they are coping. Of course, depending on your child’s age, indications that they may be having difficulty may vary: younger children may have increased incidents of bed wetting, incontinence and thumb sucking; while adolescents may become truant, defiant, and/or agitated.

Experts discuss the benefits of being open and honest with your children about moving, as well as informing them as soon as possible. Child experts have also recommended increasing your availability to your kids as well as acknowledging their feelings during the process. Younger children may need more comforting than usual, while older children may need to talk about the process.

Additionally, establishing continuity and allowing involvement in the process (when appropriate) can make the transition easier on children. Before the move, depending on the distance, you may be able to have your children visit the new school and possibly meet some of the kids in the new neighborhood. Have children help in packing and/or engage in other appropriate activities.

Many resources exist to assist you and your children cope with the process of moving to a new home, as this article is not intended to provide medical or psychological advice. Besides the many books written about the subject, school counselors, teachers, and pediatricians, are just a few professionals who may be able to assist you during this process. Of course, you should consult a medical, psychiatric, and/or a psychological professional if you have concerns about your child.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

October 27, 2010October 5, 2019

A developmental theory of home buying

The average number of lifetime home purchases by a home buyer.

Recently, a home buyer told me that it will take him time to find his “perfect” home. You see, he is looking for the perfect home because, as he put it: “I only have one more move left in me…” Although no one has ever calculated the number of homes an average home buyer purchases over their lifetime, someone once decided that people typically purchase a home every five to seven years. Keeping this rule in mind, he has at least two moves left.

Interestingly, with all the life planning people maintain for their finances, career, and estate, most people do not say things such as, “I will own four homes in my life…” For many, home buying and selling tend to revolve around life events and personal preferences that change during a person’s lifetime. Of course some people contently live in one home for their entire lives, and some never become a home owner.

If the National Association of Realtors® data regarding first time homebuyers is correct, then it very well may be that the average person may have three home purchases during their lifespan, notwithstanding life or financial crises or job relocation. According to the National Association of Realtors® Home Buyer’s Home Preferences (published by NAR, 2007), most people tend to move within a fifteen mile radius from their previous home; a majority of these moves are within five miles. These three moves may actually parallel the adult stages of Erik Erikson’s theory of human development.

The National Association of Realtors® Profile of Home Buyers and Sellers (published by the NAR, 2008 and 2009) states that a majority of first time home buyers fall into the 25 to 34 year old range with a median age of 30 years old. This is a time period that coincides with Erikson’s Intimacy vs. Isolation stage (ages 20 to 34) when people are forming commitments; people are beginning in their chosen careers and formulating family plans.

A person’s second home is purchased for various reasons. However, the National Association of Realtors® Home Buyer’s Home Preferences (NAR, 2007) states that most home buyers prefer newer homes; and of those home buyers, the greatest majority desire a newly built home. This time period may coincide with Erikson’s stage of Generativity vs. Stagnation (ages 35 to 65); when a person focuses on their societal contributions and their growth in public prominence.

Erikson’s final stage of Ego Integrity vs. Despair may coincide with a person’s third home purchase because it is a time when people begin to define their life and accomplishments. The third home purchase may be the “reward” for working many years; often focusing on amenities and luxuries. Even though many downsize during this stage, the home tends to be focused on making them comfortable; not only having home features that are a luxury to them but also convenient to local services.

So the buyer proclaiming having only “one more move” in him, may in due course decide he was wrong. Although he may be anticipating how the buying and selling process relates to his life, he is certainly looking for a home he will not outgrow. However, it may be that in seven to ten years I may again hear him proclaim, “I have only one more move left in me.”

Comments are welcome. 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 October 25, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

September 30, 2010October 5, 2019

How unknown problems jeopardizes the home sale

“What you don’t know won’t hurt you” is an idiom that implies that you can be happier by not looking into the unknown. However, this does not apply to real estate transactions. Homebuyers and sellers both invest a great deal of time and money in the process prior to settlement and do not want to have it all squandered on an unknown that can ruin their home sale.

Homebuyers typically spend about twelve weeks searching for a home (according to NAR’s Profile of Home Buyers and Sellers 2009), and can spend a nice sum of money when the cost of a home inspection, loan application, appraisal, gas for driving, time off of work, etc. is totaled. Likewise a home seller invests time and money in preparing for closing all the while having their home sale depending on the performance of the buyer.

Unfortunately, a transaction can sometimes become laden with unknown landmines waiting to blow up the deal. Although most real estate agents try to vet their clients before entering into a contract, hidden issues threatening the closing may not be revealed until weeks after a ratified contract and sometimes not until closing. If you’re a buyer or a seller, it makes sense to ask about your counterpart; and if there’s opportunity, take the time to find out more about them prior to becoming invested in the sales contract.

Take, for example, divorce. Although divorce is a common issue that is encountered within a transaction, it is sometimes not fully disclosed and can affect the outcome of the home sale. A homebuyer’s ability to purchase a home could be affected by shared accounts that have not been revealed or responsibility is refused by their spouse; the resulting homebuyer’s high debt ratio could disqualify them from their mortgage. Likewise, a home seller going through a divorce can be tripped up by an uncooperative spouse who is unwilling to sign the deed.

Homebuyer issues can pose potential problems if not evaluated properly. Undisclosed credit, financial, and legal issues can pop up any time throwing a wrench into the home sale; sometimes these issues don’t reveal themselves until the end of the process because the loan officer and/or agent did not ask the right questions or ask for all the required documentation. Additionally, unlicensed lenders and loan officers that continue to attempt to do business can also be a potential problem as they may be prevented from providing the homebuyer a mortgage.

Unknown home seller issues may also jeopardize the home sale; surprise issues are typically related to providing clear title to the buyer, but can also include various legal problems. Title defects may include unpaid mortgages and (tax and mechanics) liens. Sometimes a seller may need third party approval from a trustee or lender (such as in bankruptcy or foreclosure), which can either prevent or prolong the sale.

Due diligence prior to entering a sales contract may prevent sticky problems; searching available public records and reviewing disclosures for discrepancies could provide extra information that can assist you in your decision process. Undisclosed buyer and seller issues, although aggravating, do not always kill the home sale and often are resolved. However, consulting an attorney about recourse over a soured real estate transaction is always a good idea.

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 September 27, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.