Scrounging up the money for a down payment on a home may seem futile, depending on your situation. Saving money for a rainy day period can seem like a challenge – Daniel Bortz via realtor.com writes 69% of Americans have less than $1,000 in savings according to a recent survey by GOBankingRates.com.
A Look at Home Loans
If you’re shopping for a home loan, nothing beats discussing loan options with one of our skilled and knowledgeable mortgage bankers at SMC, but knowing types of loans at a glance isn’t a bad idea either.
For many first time home buyers, some of the biggest questions about buying their first home, revolve around how much their mortgage will cost. Not necessarily the mortgage itself, but the fees and costs associated with procuring the loan. Closing costs, escrow costs and down payment percentages are usually the biggest costs that borrowers worry about when getting a mortgage. Fortunately, closing costs and escrow costs are detailed in the GFE – a document that estimates the closing costs well before closing.
For individuals without any credit, securing a mortgage loan can be nearly impossible. Most of us know that a mortgage approval is based on several different factors, however, the largest factor is your credit – or more specifically, your FICO credit score.
Currently, FICO scores pulled from Equifax, Experian, and TransUnion are the only reports to measure a potential borrower’s credit worthiness.
But there’s a problem with that – some would be borrowers have so little credit that they don’t even have a FICO score at all, and because of that, some borrowers are turned down for mortgages.
However, all of this may be changing soon, according to an announcement by HUD Secretary Julian Castro and NAR President Chris Polychron earlier this month. According to the two industry specialists, the agencies are exploring alternative credit systems in an effort to expand American’s access to mortgages.
This announcement falls in line with last year’s statement by VantageScore – an alternative scoring system – that Fannie Mae and Freddie Mac, the two government loan agencies, were looking into updating their credit scoring methods.
Though it has not yet been confirmed that VantageScore will be used along with or in place of FICO scoring, this new development – if utilized – could work to change the game for many borrowers – 7.6 million borrowers to be specific.
Spring has sprung – and so has the housing market. According to a recent report from The National Association of Realtors, the pending home sale index rose 3.1% in February. Even more impressive is the explosion in housing contract signings. The Midwest and Southern regions of the U.S. have currently hit the highest level of contract signings in two years.
"Pending sales showed solid gains last month, driven by a steadily-improving labor market, mortgage rates hovering around 4 percent and the likelihood of more renters looking to hedge against increasing rents,” said Lawrence Yun, a chief economist with The National Realtors Association.
Yun went on to note that though the market is strengthening, there is still an issue with the number of homes that are available for sale. However, The National Realtors Association is projecting a 6.4% increase of homes available in 2015.
Are you thinking about buying your first home? Check out our First Time Home Buyer’s Study Guide to learn how to buy with confidence.
Down payment requirements can be very intimidating, and trying to save for a 20% down payment can seem impossible. Luckily, the secret is out – you don’t actually need to have 20% for a down payment. Because, really, who has an extra 20 or 40 grand lying around?
Here are your options:
Go for an FHA loan – FHA loans, or Federal Housing Administration loans, are not actually funded through the FHA, they are simply ensured by the FHA. The FHA insurance covers the lender in the event that a borrower should default, and because of that, these loans are considered less risky for lenders. The FHA loan comes with a low interest rate and as little as a 3.5% down payment.
Check out a USDA loan – USDA loans are issued through the U.S. Department of Agriculture and are great for borrowers who are unable to save for a down payment because they require NO money down. Yes, that’s right. These loans offer 100% financing. What’s the catch? Well, there is none really. Though borrowers must meet location and income requirements, the location requirements expand much further than the countryside. In fact, some suburbs that surround cities fall within the limits.
Try a contingency – This is only applicable to those who are already home owners. Essentially, a contingency is a clause in your contract that states that a percentage of the equity in your current home, will go toward the down payment of your new home, contingent upon your first home’s sale.
Are you a veteran? The VA loan allows veterans and qualifying spouses to get a 0% down mortgage.
Even if you can’t come up with a down payment, you do have options, and you can still purchase a home. If you’re interested in purchasing your first home, check out our First Time Home Buyer’s Study Guide to learn about the process.
Questions? Call a mortgage banker at 1 (888) 914-2276.
With 73 million distinctive visitors in December, Zillow is the most popular real estate information site out there. But questions about the accuracy of its “Zestimates,” or housing estimates, have been growing among critics.
With such a well-publicized and trusted platform, many Americans utilize Zillow Zestimates when buying or selling their homes. According Dilbeck Real Estate agent Tim Freund, clients not willing to budge from a Zestimate will quickly “kill a deal.”
Zillow CEO Spencer Rascoff recently appeared on CBS This Morning, where co-host Norah O’Donnell asked him to talk about the accuracy of Zestimates. Rascoff referred to Zestimates as a “good starting point,” but said that nationwide Zestimates had a median error rate of about 8%.
However, while Rascoff admitted that the median error rate was about 8%, he did not delve into the issue of localized error rates, which in some cases – like in Somerset County, Md. – are up to an incredible 42%, according to the LA Times.
Zillow is a great site for viewing listings, but ultimately a home’s price is based on an up-to-date appraisal.
According to a recent index report by the National Association of Home Builders, more markets have returned to normal, yielding 90% nationwide normal economic and housing activity. The index focuses on current factors such as current price, employment and current permit data.
The chair of the National Association of Home Builders said that, “a growing economy and rising consumer confidence should help drive the release of pent up demand in 2015.”
This data, coupled with lowered down payment requirements from Fannie Mae and Freddie Mac, as well as record low interest rates on mortgages, are the perfect storm of factors to create a booming housing market in 2015.
Mortgages are becoming easier to secure – as indicated by recent data by the Mortgage Bankers Association; their index on mortgage credit availability increased by 1.8% in January for all loan types. Even the usually lesser-procured loan types, such as the jumbo loans and the government backed loans, yielded growth.
This sudden boom is, no doubt, influenced by the softened standards of lenders nationwide. When the Federal Reserve surveyed senior loan officers last month, their findings were contingent with the study, verifying that many large banks had reduced lending standards.
There have been many changes over the past two months – changes that the government hopes will lead to a much-needed housing boom. In December, government housing associations Fannie Mae and Freddie Mac, announced the new acceptance of loans with as little as 3% down payment. Another effort, put forward by the FHA last month, lowered mortgage insurance premiums.
So far, the FHA changes have yielded refinance applications to jump from 9.1% to 13.1% of overall loan applications, in just one week.
The U.S. Department of Housing and Urban Development (HUD) is working to locate approximately 248,000 home owners who are owed a total of $175 million in FHA mortgage insurance refunds. While the HUD has recently increased its efforts to find these home owners, some have not been found – mostly due to relocation and a lack of current address records.
But why does HUD owe home buyers money?
Before January 1, 2001, it was mandatory for all home buyers to purchase mortgage insurance on FHA loans.
When a home owner with an FHA-insured loan pays off the loan within five years, they get a portion of the mortgage insurance premium back. It is similar to any home owner’s fire insurance policy, for example, if you purchase a policy for one year, and then decide to move from your home after six months, a portion of the premium is refunded.
Who does this impact?
There are two different kinds of refunds, the first, called the “premium refund,” is available to home owners who: originated their loan after September 1, 1983, paid an up-front premium for insurance at their closing, and did not default on their mortgage.
The second refund, called the “distributive share,” is available for home owners who: acquired their loan before September 1, 1983, paid on their loan for over seven years, and terminated their FHA insurance before November 5, 1990.
How do you find out if you’re owed money?
Find your FHA loan number and visit HUD’s website or call toll-free 1-800-697-6967.