The Pest Inspection, from a lender's perspective

As a general rule, I always recommend that a home buyer in South Carolina have a licensed pest inspector perform an inspection when purchasing a home. The pest inspector will issue the "Official South Carolina Wood Infestation Report" to document his/her findings. We commonly refer to this document as the Termite Report or the CL-100. There are more than just termites that we look for in this report. Here are the 3 main areas that I focus on as a lender. 1. Live bugs. Termites are just one of a few "wood destroying" bugs that can damage your home's structure. If there are live bugs they need to be treated. 2. Location of found bugs or previous infestation of bugs. The fine print of the CL-100 states, "if there is evidence of active or past infestation of termites and/or other wood-destroying insects or funghi, it must be assumed that there is some damage to the building caused by this infestation. If this is the case, the structural integrity of this property should be evaluated by a qualified building expert." In other words, if the bugs are eating or have eaten some wood, the wood should be repaired. We will ask that a licensed general contractor or structural engineer inspect the integrity of the damaged areas and repair any damage. 3. Moisture. Bugs love wet wood. If the moisture readings are 20% or higher we will require that the conditions causing the excessive moisture be corrected. This may be as simple as re-routing gutter drains or installing a vapor barrier. Every situation is different but it is important to correct the situation and monitor moisture in the future. Although a pest inspection should be important to any home buyer, it is only required to be given to your lender if it is a requirement of your loan (FHA & VA), an appraiser recommends a pest inspection, or if the cost of the inspection is included in your settlement charges at closing. Please contact me if I can be of any assistance with your home buying and financing needs. Thank you.

Another great reason to be a homeowner

Real estate expert Pat Zaby blogs about one of the many reasons home ownership trumps renting. Hope you enjoy his article.

http://blog.patzaby.com/post/2010/11/22/Youll-Be-Worth-More.aspx

And the appraised value is...?

The first question I receive from agents and borrowers alike when learning that our company has received the appraisal report is….........wait for it…....… “What’s it worth?”

You may be surprised to learn that there is more to the appraisal report than just the appraiser’s opinion of value. When my processor receives the report she sends it to the customer and me with a note stating that the report will be sent to the underwriter for review. The underwriter has the job of determining the risk of the loan application which includes analyzing the collateral securing the loan. Value is only one component of overall report. One of the largest private mortgage insurance companies in the U.S., PMI Mortgage Insurance Co. lists these other factors to review during the approval process.

Subject Property:
1. Does the appraiser appropriately and completely describe the subject property’s features, amenities, quality of interior and exterior finishes, fixtures and materials?
2. Does the appraiser accurately report the subject property’s neighborhood value trends (increasing, stable or declining)? If the subject property is in a distressed market, the appraiser should use comparables that are not older than 3 months and provide a current listing.
3. Is there support for the subject property’s effective age?
4. Does the appraiser report and analyze the subject property’s current and prior listings and sales activity?
5. Does the appraiser disclose and analyze negative features and/or characteristics of the subject property?

Comparables:
6. Does the appraiser consistently support the adjustments assigned to the comparables?
7. Are the subject and comparables consistent with the neighborhood boundaries as shown on the location map?
8. Are the comparables similar to the subject property in relation to style, sales price and square footage, and explained if not?
9. Does the appraiser use non-MLS or non-verifiable comparables, and if so, do they explain why?
10. Does the appraiser report, analyze and appropriately adjust for seller concessions?

When an appraiser believes that a property's sales price is supported by the value, you are only half way home. The underwriter has to believe it too.

Foreclosure Prevention

I just learned of a web site with a lot of good information for all. Here is a copy of a post about foreclosure prevention and a link to the site below. I hope you find it useful.

We have all read the facts related to foreclosures and how they are rapidly increasing. In 2009, 2,824,674 properties nationwide were in default and that number appears to be increasing. This is alarming and can be devastating for families that find themselves in this situation. Avoiding foreclosure is not easy and there is nothing that will make it feel any better to those that are going through it. It’s a difficult and challenging time of life that can only be described as something that you have to force yourself to get through. Knowing that there are millions of others going through the same thing is not overly helpful as in the end, you and your family are directly impacted and need help. We put together this list of 10 tips to avoid foreclosure in an effort to try and offer some advice that you may not have thought of if you find your home in jeopardy.

1. Don’t just ignore your problems hoping that they will go away. Unfortunately problems with credit (credit cards, loan, etc.) and especially a mortgage don’t go away they simply get worse if you attempt to ignore them. So first you have to be committed to tackling this problem head on.
2. Contact your mortgage company as early as possible when you realize you have a potential problem making your payments. This is the quickest way to get relief even if you have to really work hard to convince them to work with you. You want to ask them about any deferred payment programs or anything else they might have in place that could help you at least temporarily.
3. Refinance your loan if possible. If you have equity in your home, then refinancing your loan over a longer period can dramatically reduce your payments. You may also want to consider a home equity loan or a debt consolidation loan to try to reduce your total monthly payments (credit cards and other loans can be rolled together).
4. Be responsive to your lender by opening and responding to all correspondence and taking their phone calls as difficult as that may be. Don’t be tempted to throw away those letters, screen calls, or delete those phone messages as it won’t make them any more likely to work with you.
5. Leverage other assets as best you can (jewelry, a second car, etc.). As difficult as these can be to part with, what is more important than your home and providing shelter for yourself and your family?
6. Look to friends and family for any monetary assistance they can provide especially if this is a temporary problem. They are the most likely to understand and be willing to help you through this difficult time.
7. Get a roommate if that is an option or see if other friends and family are facing a similar situation and are willing to live together at least for a while to help reduce expenses for all involved.
8. Avoid foreclosure prevention companies. Most of these are simply going to try to get money from you to act on your behalf with your lender(s), which you can already do for yourself.
9. You need to learn your rights under federal and/or State law. Know whether or not your State protects your home in a bankruptcy, etc. Just be clear as to what your options are to get out from under your debts in the event you exhaust all other possibilities.
10. Look into a short sale and see if your lender will work with you to satisfy the home debt that way (of course you still end up looking for a new home). However, it can be a way to avoid bankruptcy and still salvage your credit.

http://www.changeofaddress.org/blog/2010/10-tips-to-avoid-foreclosure/

FHA Changes coming

I just crunched some numbers for a customer who has been in the market to buy a home for a few months. Her current favorite house is priced about $220k and she would be applying for an FHA loan with 3.5% down payment. At the current rate (which is hitting lows not seen since the 1960's) her total monthly payment would be about $1400 (principal, interest, taxes, insurance, and pmi). So the question is, "For what is she waiting?"

I believe there are 3 market influences that should help her jump off the fence and land in her new backyard.

1. FHA is going to change both the "up front mortgage insurance premium" and the "annual mortgage insurance" on October 4th. The upfront premium calculation is to be lowered but the annual mortgage insurance is increasing by about 60% for most borrowers. The net effect will increase my customer's payment about $50 per month; even if the interest rate stays the same.

2. Perhaps she is waiting for home prices to fall further. Well let's do some math! If her current favorite house price drops 5% to $209,000 but interest rate jumps 1%, her payment will actually increase by about $69 per month, or almost $25k over the life of her loan. In a nutshell she pays $25k more for a less expensive home.

3. What if the rates go up and the price stays the same? An increase in the rate by 1% increases her payment about $130, or a little more than $47k over the life of the loan.

I'm by no means predicting rates will rise soon; but come on! The time is NOW. Make an offer and call me to lock the rate.

To Refinance or Not to Refinance?

The answer varies depending on how much longer you plan on living at your home, the tax bracket you fall into, and the costs and charges included when refinancing. There are also many other factors to consider when deciding to refinance your mortgage loan. Is the current interest rate low enough to save you money? Should you change the type of mortgage you currently have? How will refinancing affect your payments? These are great questions to ask yourself when deciding to refinance or not.

What's involved in refinancing?

In refinancing your mortgage, you are paying most of the same costs as your original mortgage. Basically you are paying off your original mortgage loan and obtaining a new one with a better rate. Make sure to find out all the costs involved when getting a new loan.

Will you save money when you refinance? To determine this you will need to find out what your new payment will be. To find out the length of time it will take to reclaim the costs of refinancing, divide your closing costs by the difference between your new and old monthly payments.

How many points will the lender charge to refinance? Lenders will offer a wide range of interest rates at different amount of points. A general rule is that each point adds about 1/8 to 1/25 of 1% to the interest rate. The more points a lender charges, the lower the interest rate on the mortgage loan and vice versa.

Will this affect the taxes you pay? Your tax payment may increase due to the less interest you deduct on your income tax return because of the lower interest rate on your mortgage loan. This in turn will decrease the total savings you might get from a lower-interest mortgage.

Do you have to refinance with the same lender? No you do not have to refinance your mortgage with the same lender. However, some lenders will offer certain incentives such as lower interest rates and reduced closing costs to keep your business. Shopping around is key before making a final decision. While deciding on which lender to go with, you might also want to consider other types of mortgages. Situation changes all the time so it doesn't hurt to see if other mortgage loans will suit you better.

Condo Financing

As many of you know, financing for a condo purchase can be challenging in the aftermath of the financial crisis. Lenders have always reviewed the condo association status before providing loan approval but the burden of project approval and resulting liability of potential inadequate approvals have shifted to the lender. So the process has become more difficult and time consuming.

Here are some issues to be aware of:

1. FHA changed the approval requirements back in February. In the past, lenders checked FHA's web site for approval. If it showed the condo as "approved," we were good to go. If it was not "approved" we submitted a spot approval request and hoped the underwriter would approve it. There are NO more spot approvals. To make matters more confusing, FHA has gone back and forth regarding the approval status of condo associations on the website. The most current information out of FHA's regional center in Atlanta is that if a condo association was previously approved prior to the February change, then the approval will expire on 12/7/10. Lenders may want to recertify that the investor concentration in the community is still below the maximum percentage before granting approval. Associations that were not approved or have not been recertified will require new certification and approval; a process which will take at least 60 days to complete. If the condo has already gone through the new approval process then a different expiration date will appear. But it is up to the each borrower's lender to again certify that the community meets FHA requirements. And that process can be just as lengthy.

Fun stuff, eh?

2. Conventional loans require the condo project to be approved through a project management review system. The process is not as time consuming but much of the same information will be reviewed for approval.

3. VA loans haven't changed the requirements. Check for approval status using the following link: http://condopudbuilder.vba.va.gov/2.2/frames.html

Either way it is clear that the lender and real estate professional will need to work together in an effort to expedite condo association approvals. Here is a list of some of the items that we will be gathering:
1. Completed FHA Condo Questionnaire.
2. Copy of the recorded Declarations, Covenants, & Restrictions.
3. Copy of the By-Laws.
4. Copy of the Articles of Incorporation.
5. Copy of the master insurance policy.
6. Copy of current and previous year's budget outlining income, expenses, and reserve amounts.
7. Copy of current reserve plan and balance sheet showing reserve balances.
8. Copy of the preliminary title report.
9. Appraisal.
10. Copy of Recorded Plat.
11. Flood Certification and/or copy of FEMA map for location.

Issues to be aware of: investor concentration, percentage of FHA loans in the community, any future additions or special assessments, pending legal actions, single entity ownership, adequate reserves.
Please contact me directly if I can help you with your real estate or mortgage related need. Thank you!

Percentage of Home Price to use for Downpayment

Getting a home is both exciting and stressful. Stress usually arises when it comes time to consider the amount of money that a home will cost the buyer. In particular, coming up with enough money for the down payment can bring quite a bit of anxiety. How much money should a buyer have to put down? It depends on the type of loan that a person is getting. Government Loans There are programs operated by the federal program that were created to make it easier for certain groups of people to get homes. If a person has served in the military, the U.S. Department of Veterans Affairs has a loan guarantee program that lets the buyer move in without a down payment. Also, the Department of Agriculture’s Guaranteed Rural Housing Loan Program allows people living in certain rural areas to get homes without putting any money down. Anyone who qualifies for a mortgage backed by the Federal Housing Administration can buy a home with as little as 3.5 percent down. However, there is a mortgage insurance premium that needs to be paid up front. Private Conventional Lenders Mortgage lenders such as banks can require quite a bit more for down payments. The main reason is they are assuming risks that are not backed by the government. Any losses are suffered by the lenders and their investors. The amount of a down payment varies from lender to lender. Some customers with a track record of being exceptionally creditworthy can pay as little as 5 percent down. Others may be allowed to pay 10 percent as the down payment. However, anyone putting down less than 20 percent will be required to purchase private mortgage insurance. That is, if the lender must finance more than 80 percent of the home’s selling price, there is a premium charged. There are two critical purposes for the PMI: It protects the lender against losing money if the borrower defaults on the obligation and it helps a buyer with less cash on hand still have the chance to get a home. Lenders like it when a person can pay at least 20 percent of the selling price as the premium. That is a sign the loan repayment is affordable to the borrower and the buyer is also willing to demonstrate their commitment with a large amount of his or her own funds. One plus for the new home owner is having a sizeable amount of equity as soon as moving day. Another is the higher the down payment, the better the likelihood the terms of the loan will be exceptional. Remember that a lender will want to scrutinize your finances. Try to have the down payment in your bank account a few months before applying for the loan. If the money suddenly appears such as with a gift, the lender may wonder whether you really will be able to pay back the loan.

Top 10 things NOT to do when buying a home

1. Financing any type of out of the ordinary purchase. In fact, once you apply for your loan do NOT let anybody run your credit until AFTER closing. Your mortgage lender will re-pull credit before closing!

2. Changing Jobs. You must be on your current job long enough to show 30 days worth of pay history to get a loan in today's market.

3. Opening or closing old credit accounts. Similar to number 1, don't open new credit. But don't close anything either unless it is at the direction of the underwriter.

4. Moving funds between accounts or major withdrawals or deposits--all asset accounts and funds in those accounts must be verified.

5. Take your time gathering loan documents. Lending has gotten very restrictive so get your ducks in a row and submit all the paperwork your loan officer requests as quickly as possible.

6. Give incorrect information. Make sure the information you provide is accurate, list all your previous residences, jobs, landlords, etc.

7. Depositing gifts without consulting your loan officer. Or worse yet, CASH. Non-payroll deposits must be properly sourced.

8. Waiting until the last minute to convert stocks or mutual funds into liquid funds. Funds for closing will need to be documented in advance of closing.

9. Waiting until the last minute to deposit gift funds. Consult your loan officer, complete the steps he/she asks you to complete and get the funds into your account and ready for closing.

10. Waiting until the last minute to shop for home owner's insurance.

Rates are low, prices are down, call me to get pre-qualified and go buy a house!