Where Are All The First Time Home Buyers?
A few years back, I was Sr. Mortgage Officer for a large CT credit union. Many of our members were young engineers with MBAs and young research scientists with PhDs. These were 25-30 year old Yuppies making $65,000+ per year. True to our creed of “People Helping People”, we offered an aggressive First Home Buyer package aimed at this seemingly upwardly mobile market segment. The program was not a success. Why? … because these kids were burdened with huge college loans that had to repaid.
Nothing has changed over the years. In fact it has gotten worse. In previous recessions, First Home Buyers could be counted on to rejuvenate an ailing housing industry. Not so today. According to the Federal Reserve study, only 9% of 25- to 34-year-olds got a First-Time mortgage from 2009 to 2011, compared with 17% 10 years earlier. “First-time homebuyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices quite broadly,” First-Time Home Buyers are key to a housing recovery because Move-up Buyers and Downsizers need somebody to purchase their homes in order to make a move. The market needs First Time Home Buyers for a recovery in the housing market to materialize and they are not players.
The National Association of Home Builders suggests there is a link between rising student loan debt and recovery from the housing slump. Their analysis suggests that the rise in student loan debt is a shift of the source of higher education financing – one related to housing itself. Namely, with the onset of the housing crisis and the high unemployment related to the economic slump there was a decline in the availability for families to tap into the real estate holdings which had often been used to finance higher education of children by home owning parents. Consequently, students are more likely to take out student loans on their own behalf.” They go on to say, “As more parents face tighter budget restraints as a result of lower home values, this is forcing an increasing number of students to take out their own loans for tuition, essentially shifting some of the burden of paying for college from parents to students.”
Recent college graduates carry an average debt load of more than $25,000, limiting their ability to qualify for mortgages even if they can land a job in a market with an 9% unemployment rate. The National Association of Realtors explains, “Students coming out of college are burdened with more debt than traditionally they have been, and they are also coming into an economy that is underperforming previous recoveries.” These are the First Time Home Buyers we need to stimulate the economy and the housing market.
It may take years before young people can return to the market as homebuyers. Without question, young Americans need to have the ability to pay for college in order to prepare for the jobs of the future. However, America’s mounting pile of student loan debt is a growing drag on the housing recovery, keeping First-Time Home Buyers on the sidelines and limiting the effectiveness of record-low interest rates.
Sanctuary for a First Home Buyer!
This ranch home is eligible for up to 100% Financing of the Appraised Value with the USDA’s Guaranteed Rural Housing Development Loan program. Buyers have the ability to roll the Closing Costs into the loan amount. Low Rates & Low Mortgage Insurance. You could own this home with little or no out-of-pocket monies.
Beats FHA any day!
The home offers wonderful privacy on a cul-de-sac that borders Water Co. property. It features 2 large BRs, spacious LR/DR combination, sunny eat-in kitchen, private patio, 2 car garage with workshop and additional storage.
Then Call Me at 860.945.9284 to be sure you have the “Right” information about the “Right” mortgage options for your family and to take advantage of my FREE Mortgage Pre-Approval service.
Then you can call Peggy at 203.565.6892 to schedule a showing and be ready to make an offer.
FHA’s Streamline Refinance Is Simple For Those Who Qualify
The Obama Administration’s initiative to help homeowners with FHA mortgages — even those who are underwater — refinance their loans at a lower interest rate and reduced MI premium goes into effect June 11, 2012.
Under the Obama plan, if you qualify on the following criteria, you get don’t have to go through the paperwork maze and underwriting hassles that normally come with any refinancing. Here’s a quick overview of the FHA “Streamline Refi” program and what it takes to qualify:
• Bottom Line: Your current home loan must be FHA-insured and must have been put on FHA’s books no later than May 31, 2009. If you have a mortgage owned by FNMA, Freddie Mac, the VA or a private investor, you’re out.
• You need an unblemished record of paying your mortgage payment on-time for the last 12 months. If you were late occasionally a couple of years back, that’s OK. But the last 12 months need to be perfect.
• No new verifications of your income. If you’ve been paying on time for a year, it’s presumed you’ve got the income needed to repay the new obligation.
• No New Credit Evaluation. NO Concern about FICO scores.
• No New Physical Appraisal. The program generally accepts the appraised value of your home at the time you closed on your current FHA loan as good enough — even if you’re now in serious negative equity territory.
• Reduced Upfront MI : 0.01% of the loan size. Annual MIP : 0.55% of the loan size.On a $180,000 FHA loan at a 5.50% rate, homeowners could save about $150.00 per month at today’s rates.
And the Not So Good Stuff:
• Refinancing must provide a net savings of at least 5% in your monthly principal, interest and mortgage insurance payments
• The FHA prohibits increasing a Streamline Refinance’s loan balance to cover closing costs — origination charges, legal fees, taxes, insurance escrow, etc. Closing Costs must be paid by the borrower as cash at closing.
The Next Step:
ACT NOW! If you have an FHA mortgage that closed prior to May 31, 2009 … Call Me Today! Let’s review details of the program as it applies to your unique situation. The longer you wait, the more expensive it will be!
If you have an mortgage endorsed by FHA after June 1, 2009, do us both a favor. Tell your friends and co-workers about the FHA Streamline Refinance program. Have them call me at 860.945.9284 to discuss their options. You’ll feel like a hero and I’ll have the satisfaction of helping another homeowner who might be struggling to make ends meet. Remember, I can help in CT, NY, FL and all of New England.
What is a FHA Mortgage Loan? The FHA 203(b) Mortgage Loan is the most “basic” FHA-insured mortgage loan. There are several types of FHA-insured loans … a whole alphabet soup of them. This is the one buyers talk about when they apply for a home loan.
FHA loans are Not Just for First Homebuyers. FHA loans can also be used to:
• move up to a bigger home
• downsize to a smaller one
• Buy a second/vacation home
• Refinance an existing mortgage loan
• However … You can have only one FHA-insured loan at a time. You can’t have a FHA insured loan in your name and get a second loan.
But before we go too much further …Let’s Talk About Some Basics.
The Federal Housing Administration (FHA) is a federal agency that insures loans made by FHA-approved lenders. The FHA’s objective is to assist in providing housing opportunities to families who cannot meet the qualification requirements for conventional mortgage loans.
• FHA does not set interest rates. Rates are determined by market conditions and negotiated between the buyer and the lender.
• FHA does not lend directly. The money comes from participating lenders. FHA works with these lenders to insure quality, regulatory compliance, and fairness in the lending process.
• FHA Mortgage Insurance provides FHA-approved lenders with protection against the risk that homeowners will default (foreclosure) on their mortgage obligation. The comfort level of FHA insurance enables these lenders to consider applications from buyers with as little as 3.50% down payment, credit scores in the mid-600 range and low interest rates.
FHA 203b Loan Guidelines:
FHA sets the guidelines to qualify for a 203(B) mortgage. There are a lot of them. Participating lenders may add “overlay” criteria to qualify for their version of the 203b mortgage. For example; FHA sets minimum credit score of 580 to qualify for this program. Most lenders require a minimum score of 640 to qualify. Talk candidly with your mortgage broker about your situation and about his access to lenders who offer FHA mortgages with the overlays that address your needs.
Here is an overview of the more attractive features of a FHA 203b mortgage:
• Owner occupied homes only — you must intend on living in the property.
• The program is not restricted First-Time Home Buyers. Any qualified borrower may utilize these loans for financing the purchase of a new home.
• FHA insurance enables lenders to offer the program at a lower interest rate than might be available to a buyer with similar circumstances who opts for a conventional loan product.
• The FHA 203b program allows for a 3.5% down payment. These monies can come from the borrowers’ own savings or can be a gift from family members. The program also allows 100% of the closing costs can be in the form of a gift.
• The FHA 203(b) will consider the income of non-occupant co-borrower to help qualify for the loan. This is a great way for parents to help young buyers purchase their first home.
• Seller Concessions: Home sellers can elect to contribute up to 6% of the house purchase price toward the closing costs associated with the loan. Buyers should discuss this option with their Realtor® when negotiating the purchase contract.
• The 203(b) loan can be structured as a fixed rate mortgage or an adjustable rate mortgage (ARM) loan. There tends to be more flexibility in calculating household income and debt-to-income ratios.
• The FHA 203(b) can be used to a single family, a duplex, a 3 family, or a 4 family multi-unit, owner occupied property. Remember, with a 3-4 unit loan, the down payment requirement is greater and the buyer must have 3 months mortgage, taxes and insurance payments (PITI) available in savings after the loan closes.
Now Let’s Talk About Mortgage Insurance.
To cover the risk of a borrower defaulting on the monthly payments, FHA charges an Up Front Mortgage Insurance Premium (UFMIP) as well as an annual Mortgage Insurance Premium (MIP). The cost of this insurance is paid for by the borrower. The UFMIP is typically added to the base loan amount and becomes part of borrower’s monthly payment. The annual MIP is divided into monthly installments and included in the borrower’s monthly obligation.
Recent legislation has made FHA insurance more expensive. Give me a call. Let’srun the numbers to see if an FHA 203(b) is the best option for you and your family
When your mortgage is insured by FHA, you become a secure and desirable borrower. Lenders are willing to extend benefits to you can’t find with conventional loans. The major benefit of FHA Loans is that you can qualify for a loan with a low down payment. Most conventional loans require a 20% down payment. FHA loans require a 3.5% down payment. With a gift for the down payment and seller concessions for the closing costs, you could move in with very little out-of pocket expense. Plus, should you have low credit scores or low income, you will still be able to take advantage of the benefits that make FHA Loans so affordable. Talk to your loan officer, or give me a call, to see if this is the Right mortgage option for you.
MORTGAGE BROKER vs. LOAN OFFICER: WHAT’S THE DIFFERENCE?
When you are ready to apply for a mortgage loan, you may work with a Loan Officer or you may choose to work with a Mortgage Broker. Homebuyers often do not understand the difference between a mortgage broker and a loan officer even though both are working toward the same results…a new home for you. However, it is important to understand the difference between the two types of jobs so you know what to expect from them during the mortgage application process.
What is a Mortgage Broker?
Mortgage Brokers are licensed professionals that work as an independent agent to help you, the consumer, find a loan that fits your needs. They act as a middle man between you and many lenders and can offer more mortgage options to fit almost any situation.
As part of the Pre-Qualification Process, a mortgage broker will analyze your financial situation to decide which lender is the best fit for your loan needs. He or she will send your mortgage application to the lender for approval and will work with the chosen lender until the loan closes. He or she receives a commission when the loan closes.
What is a Loan Officer?
A Loan Officer is an employee of a lending institution, such as a bank, who works to sell and process mortgages loans originated by their employer. A loan officer is not required to have a license to work in the mortgage industry. Loan officers represent the borrower to the bank and will guide the customer through the processing and closing of mortgage loan. They too have a variety of loans types to draw from, but all originate from that specific lender. If the borrower’s situation does not “fit” into the bank’s underwriting box; the application may not get approved. Loan officers are paid a commission and/or a salary for their services.
So Who Should You Work With?
I have worked as a loan officer for a regional savings & loan, as Sr. Mortgage Officer for a large credit union, as a mortgage originator for a national direct lender and now I am happy being a Mortgage Broker because I have the options I need to best serve my clients. Call me biased if you like, but here are a few reasons to consider Mortgage Broker vs a Loan Officer:
Loan Officers and Mortgage brokers analyze each home buyer’s personal and credit situation to decide which lender is the best fit for that person’s needs. A good mortgage broker can find a lender for just about any type of credit. The broker works as an intermediary between the buyer and chosen lender until the loan closes.
Mortgage brokers are licensed professionals who must pass difficult national and state exams and a criminal background check to originate mortgage loans. They must take continuing education courses and keep a certain degree of personal financial responsibility to renew their license each year. Bank loan officers have no such need.
Banks tend to be product oriented. They have only their programs to offer and, if you don’t “fit into the box” or don’t like them, they’ll send you away having wasted your valuable time. Good mortgage brokers are accustomed to comparing and contrasting loan programs – finding the best one for your situation, regardless of the lender.
Banks may not see enough of the credit challenged borrowers to offer the advice and information they need to get back on track for a more solid loan applicant. Good mortgage brokers are willing to work with clients months in advance to help prepare them for a mortgage application.
There should be a chemistry that develops between you and the broker or loan officer. Make your choice of a lender based on the trust that you build in each other. Be honest and straight forward about your plans and expectations. Don’t be afraid to ask as many questions to be sure you understand the process. Check out the broker or lender on-line. See what past clients and business partners have said about them Ask your real estate agent, your friends and co-workers friends who have recently bought a home for a referral.
And, as always, if you have other concerns, do not hesitate to Contact Me for advice and direction. It’s FREE!
What is the FHA?
The FHA’s main objective is to assist in providing housing opportunities for low and moderate-income families. FHA insured mortgage loans are a type of public assistance and historically have allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. Anyone who is a U.S. citizen, a permanent resident alien, or a non-permanent resident with a work visa and who meets the FHA’s lending guidelines can apply for a FHA-insured mortgage loan.
The Federal Housing Administration, commonly known as “FHA” is an agency of the federal government that provides mortgage insurance on loans made by FHA-approved lenders. Congress created the Fedral Housing Adminstration in 1934. The FHA became a part of the Department of Housing and Urban Development in 1965.
Every loan … credit card car loan, or mortgage … carries a certain element of risk. Lenders are most concerned with the risk of default … the risk that homeowners won’t repay their mortgage loan. Low down payments and low credit scores increase lenders concern about risk. The smaller the down payment, the greater the risk that the borrower will walk away from the house when times get tough.
FHA mortgage insurance provides FHA-Approved Lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay-off the lender’s mortgage in the event of a homeowner’s default. The added comfort level of FHA insurance enables lenders to consider applications from buyers with as little as 3.50% down payment and credit scores in the mid-600 range. Loans must meet strict requirements established by the FHA to qualify for insurance.
As my Dad used to say, “Nothing in life is free.” The cost of this mortgage insurance is passed along to the homeowner. An up-front mortgage insurance premium (UFMIP) equal to a percentage of the loan amount is due at closing. This UFMIP is normally added to the loan amount and financed over the term of the loan. In addition, there is a monthly mortgage insurance premium (MIP), also referred to as PMI … that is included in the monthly payment.
In summary … FHA enables homebuyers to own their own home with a small down payment. Little equity means greater risk to the lender. Greater risk means higher interest rates. FHA mortgage insurance reduces lender concerns. Borrower pays UFMIP and MIP to reduce lenders’ risk. When compared to conventional financing, an FHA-insured mortgage loan provides those homebuyers with limited cash and lower credit scores with the best low-cost financing option.
Avoid disappointment and future regret! NOW is the time to buy! Call me today for details on FHA financing. I’m here to help.