More Mortgage Changes!

Having just missed Halloween, I may be a little late to try to scare you with a horror story or two. But hey! There’s never a moment when a good story to shake things up isn’t welcome.  Today, I wanted to share a potential trend that a few of us have experienced in the “wonderful world of real estate”: the lenders becoming involved in the home inspection negotiation process. If that doesn’t scare the living daylights out of you, maybe it should.

At the risk of redundancy, I’ll say it again. Home sellers REALLY need to have a home inspection prior to putting their home on the market. The little quirks and irks you’ve lived with for the last 5 – 15 years will show up on the inspection.  I know you don’t think the way the dryer vent exits the house right next to the outside air condition unit is an issue, but your buyer will. It’s been that way since the house was built in 1983. Doesn’t matter. It will show up on the report. 

I have already gone on about how this inspection portion of the purchase process can spook a nervous buyer and irk a seller who feels as though he has gone as low as he can go in this market, and he can’t be bothered with $300 roof repairs, $500 worth of broken window seals and a fireplace cap that needs replaced.  Knowing this information up front and having already made the necessary repairs, puts this seller in better negotiating position. And in this “buyer’s market”, wouldn’t you, as a home seller, want to find SOME advantageous position? And buyers, wouldn’t you like to buy a well maintained home that isn’t fraught with “surprise” issues? Just buy the home, bring your toothbrush, and move in!

A couple of lenders in the area have begun to ask for a copy of the home inspection summary page, and the addendum between buyer and seller outlining how any repairs will be handled.  One lender insisted on a physical re-inspection of the property prior to closing on what most of us would consider a “typical” FHA purchase.  Because the majority of home buyers do not care to pay for a 2nd home inspection, generally speaking, a walk-through prior to closing and collecting receipts for the work performed will insure compliance of the addendum. This issue arose: who pays for the inspection, and who is now the inspector’s client?

Another problem to consider is this:  the lenders are now telling buyers they want a “sign off” on the repairs, a statement of satisfaction with the work performed, well in advance of our contractual opportunity to complete our  “…within  48 hours prior to closing…” examination of the property. Generally about 5 days prior to closing so the paperwork can be processed in time for the appointed closing date.  Moving is a busy time, and most sellers wait until the last minute to complete repairs, especially if the luxury of a few days of occupancy after closing is negotiated into the contract.  We need to know that this is a possibility, and amend the wording of our purchase contract and / or addendum, to insure the buyers can comfortably sign off on repairs that they have had the opportunity to inspect. In other words: Sellers be ready because my buyers and I are coming over sooner!

Not to be an alarmist, but I am concerned a bit that if underwriters or loan processors 4 states away review an inspection report, and the agreement between buyer and seller on certain repairs, then decide they don’t like the agreement made between buyer and seller, are they now opening up the opportunity to insert their opinion on the resolution?  I don’t know. That is a little scary to me.  If your eyes are rolling at me right now, I understand. But loan processing is a very different scenario than it has been in the past.  I’ve had this discussion with agents and loan officers who all wonder if this is a passing fad, or harbinger of even more changes to come. 

Personally, I think much of this issue could be resolved by sellers taking the bull by the horns and just getting their homes in order prior to putting them on the market.  Make sure the GFCI plugs are where they need to be. Have a fireplace? Get it cleaned and inspected. Make sure it’s been deemed safe to use by a pro. Clean the gutters and tighten the wobbly ceiling fans. I know. Those are not “material defects”, but trust me on this one: they will be on the report.  Have the HVAC cleaned and inspected. It will show up on the report if you don’t have receipts to show it’s been done.

Do you have a list of things to do prior to closing? Please complete those items ASAP.  Not all buyers have their “backs against the wall” and will be certainly in a position to delay closing until they are satisfied that all work has been completed as contractually agreed.  A delay in closing may not be in your best interest either, so fix those windows, and clean those gutters because we are coming over to re-inspect!

More Cincinnati real estate information can be found at RealCincy.com

There have been several key changes to the First Time Homebuyer Tax Credit; here are some of the highlights:

• The amount eligible for the tax credit is lesser of 10% of the cost of the home or $8,000. This is an increase from the July 2008 provision of $7,500

• Any single family residence will be eligible, as long as the homebuyer will be using it as his or her primary residence

• The tax credit reduces, or eliminates, the income tax liability for the year of the purchase. Any unused amount of tax credit is refunded to the homebuyer

• Be aware that there are income limits. The full amount of credit is available for individuals with adjusted gross income of no more than $75,000 annually. For those filing a joint return, the adjusted annual gross income can be no more than $150,000. This phases out above those caps at $95,000 and $170,000

• First time homebuyer (and homebuyer’s spouse) may not have owned a primary residence in the 3 years prior to purchasing the home in 2009

Here are some significant revisions to note:

• No repayment of the tax credit is required for home purchases on or after January 1, 2009 and before December 1, 2009.  This is a major difference from the tax credit offered to first time homebuyers in 2008

• If the home is sold within 3 years of the purchase, the entire amount of credit is recaptured on sale. This will apply only to homes purchased in 2009

• Home buyers can use state and local bond funding and still take advantage of tax credit

• All revisions are effective as of January 1, 2009

As always, it is essential to discuss your potential or impending home purchase with your tax advisor.

There are many fantastic reasons to purchase your first home – now you can add another one to the list: a sensible tax credit!  So give us a call or shoot us an email, and we will refer to you a mortgage consultant that will help you to assess your purchase power. Then, let’s get out there and boost the economy!

More Cincinnati real estate information can be found at RealCincy.com

What will my Interest Rate and Annual Percentage Rate Be?

Keeping in mind that interest rates fluctuate, ask the lender to quote an approximate rate, based on today’s published rate. Then ask about the APR, or Annual Percentage Rate.  The APR is the interest rate, combined with points, and any other charges, divided by the loan’s term (usually 30 years) to a give an annualized rate.  Your APR will be higher than your interest rate.   Some people have chosen their lender based solely on the quoted interest rate. This is a huge and costly mistake.  Your APR is the more accurate way to shop and compare.

Do You Charge Points?

Understanding Points: Points represent the lender saying  “pay me now or pay me later”. A point is one percent of the loan amount.  If you are charged points, you should be getting a lower interest rate. You are buying down your interest rate up front.  Depending on how long you expect to live in your home, points may or may not be a good idea. Consult with your real estate and lending professional, to discuss whether you should consider paying points.

What are your Total Closing Cost Fees?

Ask your lender to “aim high”. It’s best to have the worst case scenario than be too far into the process to turn back, after learning the fees have increased.  All lenders charge fees for the services that they provide to process and close your mortgage.  Closing costs must be disclosed within 3 days of the loan application process. It is the law to protect you, the consumer. Be aware though, that some brokers will initially disclose low figures, which tempt you into working with them, only to “find” and charge higher fees closer to the date of closing.

What is the Charge to “Lock-in” My Rate?

Often you will be offered a “lock-in” policy that guarantees you a certain interest rate.  There are frequently points associated with a lock-in.  There is also a time limit associated with this lock-in.  Without a lock-in, you are agreeing to prevailing rates as your closing approaches. Since rates can change daily, sometimes within the day if the market is particularly active, this one time lock-in fee may be able to lock you into an excellent rate.

Are you a Broker or a Bank?

There is a difference.  A broker is independent and can work with a variety of lender/investors.  They generally have more opportunity to find you loan programs that fit your needs.  The fees may be slightly higher, but they do provide more loan programs and buying opportunities.  The bank may have slightly lower rates and fees, but generally provide very limited lending programs.

FHA Direct Endorsement, or VA Automatic Endorsement. Is it Available if Needed?

Automatic and direct endorsement means a lender has met the government requirements for working FHA/VA lending programs. The underwriters have completed mandatory classes.  This saves you, the borrower, time if you qualify for a VA or FHA loan.

Private Mortgage Insurance, or PMI. Can I Finance PMI into the Loan?

Your lender may allow you to finance the first year’s premium into the loan amount.  PMI will be charged if your down payment is under 20% of the sales price.  This insurance premium is to protect the lender, who is carrying the bulk of the risk on this loan, in case you or someone who assumes the loan defaults.

Can I Pay Off the Loan Early Without Penalty?

Generally, the answer will be yes. There are some exceptions.  Make sure to be certain that your lender has not placed you in a loan program with a pre-payment penalty without discussing this with you, and why your situation would call for such a clause.

How Does the Mortgage Consultant’s Resume Read? Any Referrals?

Not all mortgage consultants work the same, even within the same company. Make sure you have a “good fit” and that your consultant understands the level of communication you expect.  Does your lender have a solid reputation for processing in a timely manner? Is he knowledgeable about the lending programs currently available and the latest industry changes?  Will she return your calls within the day, or the next morning at a minimum? Maybe she can provide you with a referral or two to speak with.

Are There Any First Time Buyer Programs You Can Offer?

If you are a first time buyer, ask!  This process of buying a home is exciting, and is one of the largest, most significant financial decisions you will make.  As a first time buyer, you may have questions and concerns that need addressed.  Many lenders can provide loan programs tailored to the first time buyer.  There are some programs that may require you to take an online class…..but it’s worth the time to obtain the loan!

I hope that helped to take some of the mystery out of the process. Now that you have your lender, and your loan, give us a call!

More Cincinnati real estate information can be found at RealCincy.com