Brian's Blog

Do you think that since you have filed a Chapter 13 that you will never be able to buy a home for your family?

Were you forced to file for Bankruptcy due to Illness, Loss of Job, Divorce, or other Circumstances beyond your control?

Has everyone else turned you down even though you have paid you Ch. 13 payments, rent, and any new credit on time for at least a year?

Do you feel like SCREAMING? 

 There is a Mortgage Loan that can help and you may qualify if you meet the following conditions:

If you ... 

• Paid at least the last 12 months of your Ch. 13 payments on time
• Paid your rent on time for 12 months
• Can document what caused you to file Bankruptcy - Illness, Loss of job, Divorce, etc....
• Can document your income for the past 2 years with W2's and paystubs
• Have paid 3 other "alternative" accounts like water, power, car insurance, cell phone, or day care on time for the past 12 months and can document it by Letters of Credit from those Companies.
• Have a stable job today

You may be able to buy a home today if the above conditions apply.

Imagine being able to buy a home for your family and be able to enjoy a Low Fixed Interest Rate! 

Does it still seem out of reach?

Are you too frustrated to find out? 

You may be suprised that the hardest part of being approved for this loan is having your Bankruptcy Attorney file a Motion to Incurr Debt after I Pre-Approve you by having my Underwriter Approve your Credit, Bankruptcy Documents, Income Documents, Assets, and the Documentation showing why you had to file Bankruptcy.

Is it time to have a home of your own?  

UPDATE 1/21/10

Current FHA upfront MIP is 1.75% (this is typically financed on top of the loan amount) Change to 2.25% Upfront MIP on April 5, 2010.

No word yet on the Seller Concessions for Closing Costs Proposed  changes.

Get your Mortgage Loan before it becomes More Expensive!!!!!

* Current FHA upfront MIP is 1.75% (this is typically financed on top of the loan amount) Change to 2.25%

* Current FHA monthly mortgage insurance premium is .55% Possible change, not disclosed amount yet

* Seller Concessions currently 6% (The basic guideline does not include seller paid closing cost as part of the Concessions, but things like a microwave, blinds, etc.) Change to 3% (We will confirm if the seller paid closing cost and pre-paids will change to 3% also)

* Minimum credit score of 580 (this is FHA's current guideline, but most investors are set at a 620 minimum) FHA is proposing a change for buyers under 580 to get a loan with 10% down payment (Not clear if the 10% can be a gift yet and/or if any investors will drop their current minimum to allow this)

As soon as we know the actual changes and their effective dates, I will let you know. If I can help you or any of your clients now to get them into a home before any such changes are made, just let me know.

We have a lot of new home construction here by reputable builders that target 1st time buyers by sometimes including in their marketing "Your rent payment can be your mortgage payment!" Most 1st time buyers do not understand that your mortgage payment including Principal, Interest, Taxes, and Insurance (PITI) actually needs to be 75% or less than your current rent payment. This is definitley the case if your rent payment is the MOST you can afford right now in order to pay all of your bills on time and you have little savings.

I know, I know -In this Instant gratification world we live in, we all want to buy as much as we can - The biggest house , the nicest car  the most toys  ect. So this leaves you asking a few questions which I will state here:(If I haven't read your mind and you have more questions, please feel free to leave them as a comment)

• Why would I want to have my mortgage payment including PITI be less than 75% of my rent payment? When you rent you never think about "hidden" costs that are associated with owning a home which is why you need to save 25% of the payment you are comfortable with. The BIG ONE is repairs and upkeep of the home. If you buy a new construction, you are probably thinking, "This is a brand new house and I have a warranty on everything -What could be that expensive to have to save for?" I'm glad you asked! ---One of my clients, who bought his first home as a new construction, did not take my advice and during construction he and his wife continued to upgrade his home - adding thousands to his mortgage and bringing him to his Maximum Debt-to-Income (DTI) ratio and little savings left. A week after they moved in, they went on vacation to Disney World for a week to celebrate their new home and take some well deserved time off. When they left for Disney, we had 75 degree days. Unfortunately, we had 2 nights in a row when the temperature fell below 20 degrees and his pipes burst under his kitchen sink early in the week. They came home to their new house flooded and had to replace  sheetrock, carpet and padding, and furniture. Since they had left no room in their budget for maintenance and had little savings left after buying their home, they had to tap into their equity and get a 2nd mortgage just for the repairs that did not give any extra value to the home. ---
• How much house can I afford with only 75% of my current payment? I'm glad you asked! Let's use a real world example: You live in a nice apartment, the rent is $900 per month, and you are making all of your payments on time - saving some for the downpayment on your home. $900 x 75% = $675 - $100 for Taxes and Insurance = $575 for Principal and Interest. If you are obtaining a 30 year Mortgage, the rate is 5.75%, and you ae putting 10% Down - your Mortgage Amount will be $98,530. $98,530 + 10% down payment $10,950 = $109,480 Sales Price.  I know, you are saying, "That is not a very big house!"

    Keep in mind, THIS IS NOT THE HOUSE YOU WILL LIVE IN THE REST OF YOUR LIFE and you can buy a home that just needs some inexspensive cosmetic facelifts (painting cures a lot of this PLUS a lot of elbow grease). This IS the house you will start your family in, realize how much $ and time it takes to maintain a home, PLUS  save up for kid's college, your retirement, and to move into a bigger home someday.

Okay, this post is getting a little long - so I will leave you with the true story of someone who did realize and put into practice the information above. We'll call him Bill - because, um, that's his name.

   Bill got married right after college and wanted to buy a home instead of continuing to rent. He and his wife made $30,000 between them. He took the advice of his Mortgage lender and bought a house below his means. Over the next 5 years, everytime he or his wife got a raise - they NEVER raised their level of living - they saved everything above their original budget. On their 5th Wedding Anniversary they decided it was time to start their family and have a bigger home. They bought 12 acres of land with the money they had saved, sold 2 acres along the main road and built a home twice the size of their first home in the middle of the 10 acres  but with the SAME mortgage payment! Because they lived below their means, whenever something needed to be repaired or replaced - they paid cash for it instead of running up Credit Card debt or adding a 2nd mortgage. 

  If Bill had always raised his standard of living with every increase in Income he received and never saved, he would have never been able to build the new house in the amount of time or have the same low mortgage payment. So -since he lived below his means for 5 years- he is able to enjoy a home he could not have bought other wise.

Bill's story is amazing and I wish I had done the same thing. But I'm like most of us - I want what I want and I want it NOW! 

I was sitting here wondering - "What do 1st time homebuyers need to Know about the Mortgage Loan Process?"

So here you go - My 15 Step List in Chronological Order to Home Ownership: 

1. GET PRE-APPROVED. Not just prequalified. Pre-Approved means that the Loan Officer has pulled your Credit, taken a complete apllication, received your Income Documents and Down Payment verification, has had you sign the Disclosures for your loan, and the Underwriter has Approved all of it in order to give you a Pre-Approval so that only having the House approved by Satisfactory Appraisal, Marketable Title, Inspections per the Contarct completed, and obtaining your HomeOwner's Insurance are the only Condidtions left before you receive the Clear To Close.
   
2. Choose Loan Options - An experienced Loan Officer will give you a Comparison of  Loan Options at this point. These options will include documenting how much $ You will bring to Closing if You or the Seller pay for Closing Costs and Pre-Paids, Options with and without Mortgage Insurance, Options to have and Adjustable Rate Mortgage or a Fixed rate Mortgage, and so on. With your Loan Officer's help, you choose the Option that best suits your family's needs.
3. Pre-Approval Letter - This letter is what Loan Officers give to the Realtor of your choice to explain what you have been Approved for (which Option you chose). It includes what the loan program allows - Such as: the type of home (Single Family Home, Duplex, Triplex, Quadraplex, Log Cabin, Mobile Home, ect.), the Maximum Sales Price, how much the Seller is allowed to pay toward Closing Costs and Pre-paids, and any special house requirements for that loan program (some programs require thicker insulation, maximum acres attached to the home, minimum # of bedrooms,  ect.) so that the Realtor can help you write the best possible Offer to Purchase in your favor within the limits of your mortgage program.
4. Do Not Change Anything about Your Credit - I know what you are thinking - "I'm pre-approved so I can do anything I want now!" Actually, No you can't. What if it takes you more than a month to find your home and then another month to Close? Some mortgage programs will allow the Credit Report to be used for only 30 - 60 days. If you have bought a new car, added any new credit, or even ran up your Credit card balances - you could self-destruct your Pre-Approval when they pull your Credit report again
5. Do Not Change Anything about Your Finances- Do not change jobs, move down payment money around in your bank accounts, or Close Bank, 401k, or Retirement Accounts that we are using as Reserves - changing these things could make the process longer or even kill the loan.
6. Look for your Home - This is the fun part!! Tell your Realtor exactly that type of home and features you are looking for in your new home and hop into their Realtor-mobile with listings that fit your description of your 1st Home.
7. Writing the Offer - When you find the home you want - Follow you Realtor's advice when writing the offer - Your Realtor is the EXPERT AT THIS!! With your Pre-Approval letter in hand, your Realtor will write the best Offer to Purchase in your favor - being sure to include everything that the Seller can pay for within the limits of your Mortgage program (see #3). You will probably receive and write counteroffers back and forth between you and the Seller before you both agree and Execute the Contract. Don't be disappointed that the Seller did not accept your first offer - this is the way both sides come to an agreement of Contract.
8. Accepted Contract  of Sale - Once you have an Accepted Contract of Sale signed by all parties, your Realtor will send a copy to the Loan Officer so that He or She can review and order the Appraisal - since the Appraiser needs the Contact of Sale to complete the Report. Usually the Realtor will order the Inspection Letters per the Contract of Sale(Home Inspection, Pest Inspections, Heat and Air Inspections, ect)  Review steps #4 and #5.
9. Appraisal Received -Once the Appraisal is received - the Loan Officer reveiws it for a number of key factors - but none as important as the Appraised value of the Home. If the Appraised value is the same or higher than the Contract Sales price then we continue to step #10. If the Appraised Value is lower than the Contract Sales Price - then you go back to step #7 and renegotiate the Sales price on the Contact down to the Appraised Value (which may result in the Seller no longer being able to pay Closing Costs and Pre-paids). If the renegotiation results in the Contract Sales Price being equal to or less than the Appraised Value then we proceed to step #10. Review steps #4 and #5
   
10. Title Report is ordered - In South Carolina this is ordered from the Real Estate Attorney you chose when you signed your Disclosures in step #1. The reason we wait until now to order Title is - if anything on step 9 fell thru and we ordered the Title at the same time as the Appraisal - you could owe fees to an Attorney and not be able to Close the Loan. This Title report, first of all, verifies if the Seller is the only legal owner of the property by going back 50 -60 years in courthouse records to document when the property transferred ownership and if it was done properly. 2nd, the Title report will verify the property lines recorded at the courthouse and will let us know if we need a new survey or if the survey of record will suffice.
11. Conditions Obtained - At this point, your Loan Officer or his Processor will receive a list of remaining requirements the Underwriter has sent after he has reviewed all the information from the previous steps. Most of the time, the Processor can obtain what is needed on her own; however, some of these Conditions(or Requirements) may require you to supply more documentation to the Loan Officer. Please obtain this documentation as soon as possible to ensure that your loan Closes on time! Review steps #4 &#5
    
12. Final Conditions Sent to Underwriter - Your Loan Officer and Processor will send all of the remaining Conditions at one time to the Underwriter so that we will receive a Clear to Close on your file.
13. Clear to Close means that the file is leaving the Underwriter's desk and going to the Closing Department. Here the file is reviewed for accuracy, verifications are made that you- 1) still work at the same job - 2)Still have the same amount of money in the bank - 3) your credit has not changed if the first Credit Report has expired - (See steps #4 & #5) and the package is prepared for email or overnight to the Attorney's office for the Closing Date.
14. Package Received at Attorney's Office and the HUD is prepared - which is the Settlement Statement of your Loan documenting who is paying the Closing Costs, Pre-paids, Inspection fees, Realtor Commisions, and last-but-not-least how much Money you are bringing to the Closing Table. The HUD is sent to you and the Seller to prepare you for the Closing Date and your Loan Officer and Realtor check it for accuracy. This is the point in time where I call my Client (Homebuyer) and I go over everything there is to know about the loan -Rate, Term, loan amount, Money to bring to closing, mortgage insurance (if applicable), pre-payment penalty (if applicable), how much the Seller is paying towardthe Closing Costs, ect.  Now, Mr. & Mrs. Homebuyer, you are reminded of everything you had agreed to weeks before - so there is no confusion at the Closing allowing you to sign the paperwork Stress Free!
15. Closing Day is Finally Here!! That's right - the day is finally here! You have set up the time for the moving truck and you brought anything your Loan Officer or Realtor told you to bring  -Especially the Down payment and any Closing Costs you agreed to on the Contract of Sale. You get to the Closing table - everyone is happy and you sign the paperwork. The Realtor hands you the keys to your new home and you are Officially a HOMEOWNER!!

Each year, millions of Americans move into the home of their dreams. As time goes by, families expand, kids grow older, and suddenly that home isn't quite so perfect anymore. Or perhaps you still love your home, but you really want a gourmet kitchen and a larger master bedroom. Should you start looking for a new house? Or would it be better to stay where you are and remodel instead?

Both options involve a significant investment of time and money, so it's important to take your time and make an informed decision. You'll also want to be sure to consider both the financial and the emotional sides of the equation. Let's begin by examining the financial factors involved.

Selling: A good local real estate agent should be able to assist you with estimates on these numbers.

•·   How much will it cost to purchase a home that will meet your needs?

•·   How much could you sell your existing home for? Don't forget to subtract the agent's commission from this total.

•·   What will it cost to move? According to real estate consultant and best-selling author of Remodel or Move, Dan Fritschen, a typical move costs 10% of the value of your home.

•·   How much will your property taxes increase as a result of the move?

Remodeling:

•·   What projects do you want to have done and how much will they cost? An architect or general contractor will be able to assist you with these figures.

•·   How much will the improvements add to the value of your home, also known as the "payback"? A local real estate agent can assist with this as well.

If the decision about whether to renovate or sell were purely a financial one, then it would be quite easy to look at the numbers and come to the right conclusion. However, there are also emotional factors that come into play, and they have a value as well. Let's consider some examples.

Reasons you may want to Sell:

•·   If you relocate to a new neighborhood, your children could attend superior schools.

•·   You would like to reduce your commute or have better access to local amenities, such as restaurants and shopping.

•·   You're not particularly fond of your current neighborhood.

•·   Your yard is too small, and you cannot expand it.

•·   You're happy with your location. It's convenient, you love your neighbors, and the schools are either excellent or are not a factor.

•·   You love the layout of your home.

•·   All you need is a little more space, and your home will be perfect.

Of course only you know what is truly important for your happiness, so try to use these questions as a starting point. Create a list of the pros and cons of each scenario and leave it someplace accessible, so that you and your spouse can add to it as you think of additional factors. You may also want to consider attending open houses and visiting new housing developments to see what is available and how your home compares.

If you choose to remodel, then you'll need to have a clear idea of what you want to accomplish before finalizing any details with the contractor or architect. One of the most expensive things you can do is change the project midstream.

If you decide to sell, then there are low-cost improvements you can make to your existing home that will help it to sell more quickly. The kitchen and the bathrooms provide the biggest return on investment in this area.

Whether you decide to remodel or buy a new home, it's important to ensure that you have proper financing in place prior to moving forward. If you decide to purchase a home, I will help you to determine how much you can afford, as well as which loan package works best with your overall financial plan. In the case of remodeling, you should meet me before any construction takes place. Otherwise you may severely limit the type of financing options available to you.

P.S. You can Apply here on my website!

Additional Resources:

Remodel or Move?: Make the Right Decision, by Dan Fritschen

Yesterday I received a call from a young lady (We'll call her Gertrude) who asked my opinion on if she should refinance her 15 Year, 5.25% Fixed rate mortgage to receive a lower payment on a 30 Year, 6.25% Fixed Rate Mortgage to give her some breathing room each month.

She and her husband had done everything she could think of to cut back her monthly expenses, but her family still needed about $400 a month for her to start working less hours a week to be able to be home more for her children. They had paid off their cars, credit cards, and the only "luxury" they had was Satellite TV - there was nowhere else to cut - unless they wanted to skip some meals.

I ran the numbers and Gertrude would save around $380 a month by refinancing into a 30 year mortgage and save about $260 a month if they refinanced into a 20 year mortgage. I continued the questions I ask everyone when completing an Application and we got to the Assets information -in fact, she brought it up before I got to it - that there was a substantial amount of money in CD's that were earning about 4.25% or less along with her savings that earn 2% or less in addition to her 401k that she had stopped contributing to since it was tanking. There was more than enough money in her CD's alone to pay off her mortgage and still give her more than a year's cushion should she or her husband be out of work and she even had a separate Savings account for emergencies.

    At this point,  let me stop and tell you about an influence in my life, Dave Ramsey. I had taken Dave Ramsey's Financial Peace University Course a couple of years ago. At the age of 26, through his brokerage firm, Ramsey Investments, Inc., he had built a rental real estate portfolio worth more than $4 million. Ramsey's debt-fueled success soon came to an end as the Tax Reform Act of 1986 began to negatively impact the real estate business. One of Ramsey's largest investors was sold to a larger bank, who began to take a harder look at Ramsey's borrowing habits. The bank demanded he pay $1.2 million worth of short-term notes within 90 days, forcing him to file bankruptcy. Ramsey vowed to never again borrow money - however, he did not sit around in self pity for too long - he asked God to show him how to create wealth His Way without debt and promised to teach everyone he could how to do it.Thru prayer,  searching the Bible, and attending other Christian Finacial Planners workshops - God showed him how to pick himself up and systematically save his emergency fund, payoff his debts and THEN buy investments with cash. He has been sharing his knowledge of God's Wisdom about money on the radio(on over 300 radio stations), in his books, and DVD study courses ever since.

Now Back to Our Story- After Gertrude had informed me of the amount of money she had in CD's and other Savings Accounts, she immediately asked, "Should I pay off my Mortgage with my CD's? My tax preparer said I shouldn't since I would no longer have a tax deduction for Mortgage Interest." I asked her if her Tax Preparer had backed his opnion with any real numbers - as in showing her Comparisons with her Current 2009 1040 vs. an Amended 1040 without the Mortgage Interest Deduction and she said, "No, he just said it wasn't a good idea." 

Immediately, my shoulder angel(played by Dave Ramsey) has beaten up my shoulder devil and is yelling in my brain "TELL HER TO PAY IT OFF! TELL HER TO PAY IT OFF! TELL HER! TELLLLL HERRRRRR!!!!!!"

To quiet my new-found shoulder angel I asked Gertrude to go over some real numbers with me over the phone. I reminded her that I am NOT a Tax preparer so we were going to keep it simple. I asked her if she were to pay off this mortgage how many year's salary would that leave her in Savings? She replied , "Over a year -not counting my Emergency Fund and 401k." Good. Based on the Escrow amount she gave me per year, I calculated that her Principle & Interest amount per month was $988 x 12months = Saving $11, 856 per year if she paid off her mortgage. By using an Amortization schedule for her current loan in it's 3rd year of repayment I calculated she was paying on average about $530 in Interest per month x 12 months = $6,360. Depending on variables that I did not have access to - she would actually get a deduction for a % of the $6,360 -but I used the full amount in my example to her. So I told Gertrude that even if she was getting the full amount deducted from her overall Taxes to be paid after all other deductions She would still save form the totals above $11,856 - 6,360 =$5,496 per year or $458 per month.

I explained to her that more than likely, from what she had told me, we were looking at that deduction being a lot less like maybe $2500, which would actually save her more than $9300 per year or over $775 per month (Some of you tax folks help me out). 

So I advise her to have a MBP (Mortgage Burning Party) and do a happy dance since:

1. She will save at least $458 per month - (what she needed to begin with)
2. She is currently paying out 1% in interest (5.25% on the mortgage) more than she was receiving (4.25% in CD's) - this will correct that imbalance
3. She will have over a year's salary remaining in liquid savings
4. She can now work less hours to spend more time with her kids.

She thanked me for my advice and said she was gonna get some real numbers from her Tax Preparer too (even if he is a grumpy old man) to see exactly how much she would save. I told her that if my bosses were not Christians, and they overheard me telling a Prospective Client to not refinance - but payoff her mortgage instead -I would probably be fired - But I have to be able to sleep at night and know I did the right thing for Gertrude. 

Sleep easy Gertrude - I know I will.