3 Home Buyer Financing Lies

September 21, 2011 By 1 Comment

#1 – Buyers need 20% cash down to buy a home

Did you know that some buyers can still buy a home with NO DOWN PAYMENT?  The USDA Rural Development and Department of Veterans Affairs loan programs both offer 0% down payment options.  In the case of the USDA, it is income and location restricted.  For VA loans, active military and veterans are often eligible based on their time, type and years of service.  There can also be some smaller local programs with very specific criteria that can get you close to no down payment too – the Minnesota Home Ownership Center has a great list of affordable loan programs.

For those that do not qualify for one of the programs above, there’s good old-fashioned FHA financing.  For years this program was forgotten but with the tighter lending standards of today, FHA has come back into vogue big time.  In the Twin Cities, loans amounts up to $318,550 can be financed with only 3.5% down payment through the FHA.  Loan limits for other areas are available here.

One more thing to keep in mind is that FHA & VA loans may be assumable by the next borrower (with qualifying) and thus if rates are 7% five years from now and a homeowner can offer the remainder of their loan at 4%, buyers will be lining up to take advantage of that deal!

#2 – Buyers have to have perfect credit

Today people need to be able to demonstrate a history of managing their credit well – i.e. making payments on time, having other loans/credit cards, etc.  They also need to have a stable career, which typically means 2 years of job history in their current line of work (schooling is taken into account for recent grads) and have a few bucks in the bank for unexpected surprises.

From my conversations with several different lender friends, today’s lending requirements are still less strict than they were in the 1990′s.  So in the greater context of home financing in the last couple decades, it is still easy to get a loan if you are actually equipped to handle such a responsibility.

What has really made life tougher is that now each loan has no margin for error.  Each loan application is being reviewed, re-reviewed and reviewed again.  The underwriting department will often come up with what seems like crazy requests for documenting every last item of your credit and income.  Unless you lied or “forgot” to mention something on your credit app, nearly all buyers are still making it to the closing table.

#3 – Banks are not lending money

Banks are lending tons of money.  If banks wanted to lend less money they would simply raise the interest rates they offer to decrease the number of loans people request – simply not lending money doesn’t make sense.  Even though mortgage rates are around 4% on a 30 year fixed rate loan, banks are only paying people .25% for their deposits – there is still money to be made!  Further, many loans are sold off to others and thus free up the bank to re-lend that money again.

If you are qualified buyer (see #2) and are having trouble getting a loan, I’ve got a bunch of lender friends that would be happy to help you!

Filed Under: city grants, General, Info for Buyers, Media, Opinion, special financing

The Home Buyer Financing Fallacy

September 6, 2011 By 2 Comments

For many months I’ve been hearing via almost every media channel out there that today’s home buyers are struggling to get financing – that banks have too high of standards and that many people are not able to get a loan. Funny thing is, that’s totally untrue.

Buying a home is not only a big emotional step, but it is a huge financial step as well.  You’re taking on a fixed location and a fixed set of costs for many, many years to come.  For most people, their home is their largest single asset.  For quite a few years we found that some lenders (certainly not all) would offer almost any amount of loan to almost anyone.  I swear at the peak of the housing market, a gerbil could have been approved for a “NINJA” loan.

So after years of crazy loans and billions in losses, banks have now become so hesitant to give out a loan that you have to have perfect credit and a huge down payment to buy a home, right?  Wrong…. WAY wrong.

Today people need to be able to demonstrate a history of managing their credit well – i.e. making payments on time, having other loans/credit cards, etc.  They also need to have a stable career, which typically means 2 years of job history in their current line of work (schooling is taken into account for recent grads).  Finally, they have to have 3.5% down payment money, most of which can be gifted to them from a family member if necessary.  Does that sound crazy to you?

From my conversations with several different lender friends, today’s lending requirements are still less strict than they were in the 1990′s.  So in the greater context of home financing in the last couple decades, it is still easy to get a loan if you are actually equipped to handle such a responsibility.

What has really made life tougher is that now each loan has no margin for error.  Each loan application is being reviewed, re-reviewed and reviewed again.  The underwriting department will often come up with what seems like crazy requests for documenting every last item of your credit and income.  While this can seem very overblown, they are doing so because they don’t want to go through a single new foreclosure if they can help it.  Unless you lied or “forgot” to mention something on your credit app, almost all buyers are still making it to the closing table… though sometimes a few days later than planned.

So if you’ve paid your bills on time and have some job stability, I highly encourage you to talk to a mortgage broker – I bet you’ll be pleasantly surprised.  If you question whether you would get approved, I’d suggest you still talk to a mortgage broker to understand your current situation and then reach out to the Minnesota Home Ownership Center to get credit counseling and/or home buying advice. The right efforts started today will put you on a path to home ownership in the not-to-distant future.

Filed Under: Info for Buyers, Media, Mortgage Rates

Foreclosures are a Lagging Indicator

January 25, 2011 By Leave a Comment

Star Tribune reporter Jim Buchta ran a post on his blog discussing Minnesota Home Ownership Center’s data release showing that Minnesota pre-foreclosure notices rose in 2010 vs. 2009, albeit by only a small percentage.

As seems to be the case with comments I see now on most news stories, there were a lot of idiots adding their two cents of nonsense to the story.  Some of the comments though were definitely more topical and appropriate – one of the comments I saw multiple times was confusion as to why the economy can be “on the rebound” but yet foreclosure activity is still increasing?

I think it is important for everyone to understand that foreclosure activity is a lagging indicator of the economy as a whole and the real estate market too.  For one, the foreclosure process itself is can be a 12 – 24 month process since lenders often take many months to schedule the sheriff’s sale:

 

Once a homeowner gets behind on their payments it can become difficult to bring the loan current if their lender doesn’t work with them on a repayment schedule and late payments and attorney’s fees can add up quickly.  So even in a time when employment is slowly rising and the jobless find jobs, you could have many households so far behind in payments that they simply cannot recover.

Further, after a home has been through a sheriff’s sale the only way the owner can keep it is to pay the full amount of the sheriff’s sale price and since their credit has been damaged by the foreclosure process, it is almost impossible to get financing – and most people who couldn’t make their payments do not have $200,000 in cash laying around!

Once the sheriff’s sale has happened the homeowner has another 6 months to occupy the home if they wish – after that the bank will often take 15-45 days to prep the home for sale before listing it with an agent, which further draws out the timeline to clear foreclosures from our system.

The Minnesota Home Ownership Center’s pre-foreclosure notices are definitely a leading indicator for foreclosure activity so until we see those notices fall in significant numbers, foreclosure activity will remain very high, but I still see this more as a “high tide” than a next wave.

Filed Under: Community Issues, Crystal Ball Projections, Foreclosures and Short Sales, Info for Buyers, Info for Sellers, Market Stats, Media, Opinion, Personal Experiences, Short Sales

Foreclosures: Doing the Right Thing – Part II

August 20, 2010 By 8 Comments

A few days ago I wrote about one couple’s decision to skip out on their obligations out of convenience, and today I found one that makes the last couple look like saints:

Ohio Man Bulldozes Home to Avoid Foreclosure

From what I hear, this isn’t illegal in many areas.  Since the guy owned the home he can do what he wants with the property.  I’ve heard stories about homeowners turning on all the water in their house in the winter and turning off the heat and walking away from the house.  I’ve seen Craigslist ads where homeowners are selling the furnace, cabinetry, plumbing, lighting, etc. from their in-foreclosure houses.

What makes this any different than robbing or vandalizing a bank directly?  While people who choose to walk away from their homes for convenience (versus financial hardship) may be lacking morals, I believe the people who willfully destroy properties before walking away are down right criminal.  I would love to see Minnesota pass a law against this kind of stuff.  It is one thing to have the right to do whatever you want to do to your property, it is another thing to use that right to hurt the financial interests of others.

If you destroy a house you own free and clear of any mortgage, then all the more power to you.  Do it instead as punishment to a lender and you should spend some time in The Big House.

Filed Under: Community Issues, Foreclosures and Short Sales, Media, Opinion
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