What You Can't See Can Cost You

What You Can't See Can Cost You

In January we helped out-of-state buyers purchase a home that they found online. The clients fell in love with the beautiful photos on the MLS and submitted an offer before they even saw the home in person. The transaction went flawlessly. It was a pleasure to interact with these wonderful, easy to work with buyers. The offer was accepted, the financing approved, the inspection went well... our team and our clients felt like the transaction had to be too good to be true.

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Buying a Home With FHA Financing? Better Hurry...

For starters, I want it to be known that I think FHA loans are great. They allow buyers without the ability to put down the conventional 20% required for a home purchase to only put down 3.5% (and in some cases, 3%). I personally have an FHA loan, and if the program didn't exist, I most likely wouldn't own my house. But there is a trade off for being able to put so little down, and that is PMI (Private Mortgage Insurance) so that the lender is covered if you default on your loan. PMI is currently 1.25%. However, that is changing come April 1, 2013. Just as the FHA guidelines were changed last year on this date, the Department of Housing and Urban Development will make some slight tweaks this year. The monthly PMI is going from 1.25% to 1.35%. This will be an additional $21 a month on an FHA loan used to purchase a $250k home. The other change that is coming is that the PMI no longer goes away once the outstanding balance of the loan is down to 78% of the value of the property (22% equity in the property). Up until a year ago, the PMI went away as soon as the owner had 22% in the property. On April 1, 2012, that changed to requiring PMI on the loan for five years regardless of the amassed equity (if one were to keep the FHA loan in place as opposed to refinancing).

I see this as an act to spur refinancing down the road. Interest rates can't stay as low as they have been over the last 18 months. If interest rates were to go up 2%, no one would want to get out of their 30-year, fixed-rate, assumable (a future buyer can assume a seller's FHA loan, with their interest rate and payments if they qualify) FHA loans... unless the PMI were to never go away. By sticking the loans with PMI for their entire term, HUD is creating business in the future for lenders.

So, if you are thinking about buying a home and want to use FHA financing, you need to be under contract on a property prior to April 1, 2013 in order to follow the current guidelines. Big thanks to a great lender of mine, Chris Hauber, for breaking this to me two weeks ago.

First-Time Home Buyer: Where to Begin?

The last year has seen more first-time buyers than I could've ever imagined. This is in part because of the absurdly (and artificially) low interest rates on mortgages. It's only natural that more people would be buying when rates are this low. While a huge factor, the bursting of the bubble in 2008 played a larger role in this wave of virgins. After spending years on the sideline because they were scared their wealth would disappear in a real estate investment, 2012 has seen a lot of first-time buyers finally taking the plunge. But most still have a big question to answer before diving in: "where on earth do I begin?" The first mistake that a lot of buyers make is looking at homes (both in person and online) before meeting with a lender. Unless you are looking to make an all cash purchase (in which case you probably already own property), the lender holds the golden ticket to the candy factory. In just 30 minutes (more often less), the lender will be able to let you know what your monthly payments would be at multiple price points, and where your max price is (I advise arriving at your max price based on your comfort level, not the highest priced property you could possibly afford). There are tons of financing options out there, from FHA (a government loan with buyers putting down 3.5% of the purchase price), to conventional, to portfolio loans, you need an expert to educate you in which would best work for your situation.

Talking to a lender is great, but make sure that you are working with a lender that is going to be able to deliver on the promises they make during that first conversation. The absolute worst thing that can happen is to arrive for closing and the funds never arrive (happens way more than you would think). Ask your broker for some recommendations for lenders that they have worked with in the past, as well as doing your own research (real estate brokers CANNOT accept kickbacks from lenders, as part of RESPA, so if they give you a recommendation, there's a reason for it). Don't let the origination fee(s) be the reason that you choose a lender. You need one that knows what they are doing.

Once you are comfortable with the financing aspect, then it is time to start the property search. If you're looking in Denver, a g