Dean's Blog

Great news! 100% financing is back for rural areas. Congress approved the restoration of Rural Housing funding, subject to the President’s signature. We notified you in June that some of our lenders were closing Rural Housing loans in anticipation of the funding being restored, and now all lenders who are closing these loans should be joining the crowd.

The biggest advantages to this program are:

• 100% financing of the home purchase
• NO monthly mortgage insurance
• Competitive interest rates

This is a great program that provides up to 100% financing for the purchase of a home in rural areas. In this case, a rural area is where the population is less than 20,000 people. In Northwest Washington, all areas north of Marysville are eligible except for Mount Vernon and Bellingham. So, areas like Burlington, Sedro-Woolley, Anacortes and Oak Harbor are eligible! You can check your area for eligibility online.

There are income limits that cannot be exceeded, but they are pretty generous. For a family up to four people, here is a sampling of the maximum income allowed for 2010:

• Skagit County: $74,050
• Whatcom County: $74,050
• Island County: $89,500
• Snohomish County: $92,600
• San Juan County: $78,050

The income limits are even higher for families with five to eight people. You can check income limits for your area online.

The one major change for this program is the funding fee, which is used to self-insure the program. By self-insuring, there is no need for a monthly mortgage insurance payment from the home owner. That makes this program less expensive on a monthly basis in most cases when compared to FHA or conventional loans. The only other program that works this way is VA.

Additionally, instead of relying on Congress to re-authorize funds for this program each year, the funding fee has been increased from 2.0% to 3.5%. This funding fee can be financed into the loan, so when the seller pays for the buyer’s closing costs and pre-paid items, the buyer can achieve a no-money down loan.

Remember, not all lenders will originate Rural Housing loans. Either they don’t do any government loans, or they have elected not to have this product in their mix. So, make sure you’re speaking with a local, professional mortgage advisor who has access to all the available products. Our firm has several lenders offering this product, so feel free to contact me with any questions you have about 100% financing in rural areas.

Realtor Mag, the official publication for the National Association of Realtors, just published an article on the top five real estate scams to know about. The five scams listed are:

• The Foreclosure Rescue Scheme
• Loan Documentation Fraud
• Appraisal Fraud
• Illegal Property Flipping
• Short Sales Schemes

It’s important that you become aware of these real estate scams. Even if you are not currently in the market to buy or sell real estate, you could be approached with an offer that may seem to benefit you into the future.

While there are many legitimate programs and options out there to help people, you must have your antennas up at all times for offers that don’t seem quite right, and these real estate scams are just a few.

Two days ago, the House of Representatives agreed to extend the closing date for the first-time home buyer’s tax credit from June 30, 2010 to September 30, 2010. Today, the Senate agreed to the same thing. All that is required now is the President’s signature.

While this doesn’t provide a new opportunity for buyers who missed out on the credit, it does allow those buyers who signed a purchase contract on or before April 30, 2010 extra time to get their loans closed.

There are many transactions that involve foreclosed properties or short sales which can take longer to process. This extension gives those buyers extra time to complete the process.

Many lenders and escrow companies, including those here in Burlington, Mount Vernon and Anacortes, have seen increased volumes due to the deadline which came and went yesterday. Not helping is the furlough days that Skagit County is taking, which shuts down the recording office.

So, if you’ve needed more time to close on your home purchase, it’s likely you’ll get it.

The U.S. House of Representatives voted today to extend the first-time home buyer’s tax credit for those who were under contract by April 30, 2010.

Currently, those contracts must close by tomorrow, June 30, 2010, in order for the buyers to be eligible for the tax credit. However, many transactions are taking longer to close, especially those home taken back by the lender or being sold as a short sale.

The new measure would allow buyers to close as late as September 30, 2010 and still be eligible for the tax credit.

So, even though the House voted to extend the tax credit, the Senate must still vote on the extension for the measure to move forward.

Money Magazine recently published an article trying to answer the question: Time to Push the Button on a Condo Purchase? The article pointed out two major issues with buying a condo:

• Volatility
• Financing

Volatility – Historically, condo prices will rise and fall faster and farther than single-family residences. So, naturally, we’re seeing condo prices fall very dramatically. The article points out that while single-family house prices are down 55%, 43% and 41% in Las Vegas, Miami and San Diego, condo prices are down 66%, 63% and 45%, respectively. Further pushing down pricing is the lack of financing, which lowers demand for these units. Even condos here in Mount Vernon and Anacortes are seeing drops in prices when compared to just a few years ago.

Financing – As a professional mortgage advisor, what I know all to well is that financing for condos is significantly more difficult to obtain today than it was just two years ago. First, most private mortgage insurance companies are refusing to insure purchases. That means that in order to get a conventional loan, you have to invest at least at 20% down payment. Second, even if the condo had previously been approved by HUD for FHA financing, all those prior approvals have been thrown out, and the condo association has to start over to gain new FHA approval.

Let’s be clear – financing options ARE available. The challenge is that the builder or condo association needs to start over and submit documents to get a new approval in order to be eligible for financing. FHA and VA maintain their own lists of approved condos, and if the condo isn’t on the list, the lender will not be able to provide financing.

Before making a decision on buying a condo, talk to your local Realtor about price volatility, and speak with your local professional mortgage advisor about available financing options.

By law, you can take advantage of your free credit report once a year from each of the three major credit bureaus (Equifax, Experian and TransUnion).

To get your free credit report, go to www.AnnualCreditReport.com and select one of the bureaus. If you select a different report once every four months, twelve months will have gone by, and you can start over with the first credit bureau again. It’s a great way to monitor your credit all year long.

Now, they will not provide your credit scores for free. You can purchase the scores if you wish. However, these scores are based on a consumer scoring model, and it’s different then the scoring model they provide for the mortgage industry – the consumer scores are usually higher. Additionally, even if you did purchase your score, we cannot use that report for a loan submission because the scoring models differ. Nonetheless, you may want to purchase one bureau’s scores for about $8 if you’re interested.

There are several websites claiming to give you your credit report for free, but they actually make you sign up for a credit monitoring service for a monthly fee. www.AnnualCreditReport.com is the only website where you can take advantage of your free credit report once a year.

Rural Housing, which authorizes up to 100% financing on home purchases in non-metropolitan areas, is getting closer to having more funds available for home purchases.

This program became wildly popular last year as it was one of only two remaining programs that provided 100% financing for home purchases – the other program is VA which is for military employees. Both programs have the added advantage of having no monthly mortgage insurance.

However, with only limited funds authorized by Congress, all the money was quickly tapped out by April 2010, and new monies are not usually reauthorized until the end of each year.

Bills are circulating around Washington, D.C. to provide new funds for this program, and there must be some pretty high expectations that these bills will be passed - Rural Housing just issued a notice stating they were going to re-start issuing conditional approvals on loan packages.

Since lenders are reimbursed by these congressional funds, most lenders are waiting to close on these loans until the money is made available so they don’t have to tap into their own reserves.

Rural Housing is not a home financing program for everybody. The two most significant restrictions are geographic and income:

• The house must be located outside a metropolitan area – usually where the population is less than 20,000 (in Skagit, Island and Whatcom Counties, all areas are eligible except for Mount Vernon and Bellingham)
• The combined household income must be below a particular threshold

Also, one of the bills is restructuring the Rural Housing program so it becomes self-funding. This would be accomplished by increasing the current funding fee from 2.0% to 3.5%. The funding fee is charged to the borrower, but it’s rolled into the loan amount at closing.

Contact your local, professional mortgage advisor for more information on the Rural Housing Guaranteed program.

Homes are now undervalued compared with the size of the U.S. economy. The chart tracks the S&P/Case-Shiller National Home-Price Index and the value of gross domestic product before adjusting for inflation. By this measure, homes are the most undervalued in at least two decades, according to the BusinessWeek article that first published this story.

When you combine that with mortgage rates which have dropped again to the lowest point in the last 40 years, and we have almost a perfect storm for buying opportunities.

No matter where you live in the Pacific Northwest, whether it be Burlington, Mount Vernon, Anacortes, rural Skagit County or anywhere in Washington State, contact your professional mortgage advisor for a detailed analysis to help you make an informed decision.

The Adjustable Rate Mortgage (ARM) is a greatly misunderstood mortgage tool. There are certain circumstances when selecting an ARM makes sense, but it must be done with caution and a plan.

Many stories have been published recently about how ARMs have been one of the causes of the real estate bubble. That would be like saying aspirin should be banned because a few people’s headaches didn’t go away. An ARM is a tool – and not every tool is right for every situation. Many people selected an ARM just for its lower start rate without thinking how they might address the future.

Why might a person select an ARM?

Of course, adjustable rate mortgages are not for everybody. Here are some situations where a 5-year ARM might be a perfect fit:

• You’re buying and planning on selling your home in 5 years
• You already own your home and plan on selling in 5 years
• You expect to pay off your mortgage in the next 5 years (inheritance, selling other property, etc.)
• You already have an ARM and you need to start over with your base rate

Much like a doctor who performs a complete exam before prescribing a remedy, you must consult with your professional mortgage advisor to determine if an ARM is the right financial tool for you.

The 5-year ARM is a relative bargain right now

Yes, 30 year fixed rates are again near 40-year lows. Even compared to these low rates, the 5-year ARM is a huge bargain. Every week, Freddie Mac publishes data compiled from 125 banks across the country on interest rates. This chart’s comparison looks at the 30-year fixed rate and the 5-year adjustable.

• A year ago, the rates on both programs were basically the same
• Last month, there was almost a full 1% spread between the two programs

The difference, or spread, between these two programs can be a huge savings to a borrower when used correctly.

How does an ARM work?

Let’s take a look at one specific ARM – the 5/1 ARM:

The biggest advantage of an ARM is it has a fixed rate, but for a shorter period of time than a 30 year fixed program. Our example 5/1 ARM has a rate that will not change for the first 5 years. The rate is then recalculated and “adjusts” once every 12 months after that.

The new rate is based on the sum of the loans index plus the margin. The index varies from month-to-month and is identified in your note. For instance, one popular index is the 1-year LIBOR, which is currently at 1.130%. The  margin is a fixed number and also identified in your note – it might be 2.25%. So, if you had these terms in your note and your ARM was adjusting today, your new rate (the sum of these two numbers) might be 3.380%.

I say might be because there are limits, or “caps”, on how much your rate can go up and down on each adjustment. This is meant to protect you from the rate going higher and higher with no limits. The 5/1 ARM usually has  5/2/5 caps. That means the rate can only go up or down a maximum of 5% in the first adjustment (month 61), after which it can only go up or down a maximum of 2% in each subsequent adjustment, and the rate can never be more than 5% higher than the start rate.

You’ll notice another phenomenon. Notice that I said the rates can also adjust down. In the early 1980s when fixed rates were around 18% (yes, they were that high!), the ARM was a very popular choice because it adjusted downward as rates fell.

Again, consult your local professional mortgage advisor for assistance on selecting a program that is right for your particular situation.