Real Estate Terms for First Time Home Buyers

The real estate industry is just like any other major industry segment. The people that work within the industry use specific phrases and words that are not too common in other types of work. Understanding some of the common jargon will help first time buyers feel a little more comfortable with the process.

Mortgage – This is a loan that provides the financing for the purchase of a home. Buyers will sign a promissory note that explains the terms of the loan. The interest rate, amount borrowed and number of payments required to repay the debt are all laid out in this document. A mortgage is different from a car loan or a credit card since a piece of property is used as collateral for the loan.

Appraisal – This is a report that explains the home's value. A professional appraiser will inspect the home and then compare it to other similar homes in the nearby area. Based on common criteria such as location, square footage, age and amenities the appraiser assigns a market value to the property. This is slightly different from a home inspection. A home inspection is designed to point out any areas in need of repair or replacement. An appraisal simply decides how much a home is worth as it currently stands.

Contingency – These are requirements spelled out in the real estate contract that must be completed or met in order for the sale to go through.

For instance, most contracts will have a contingency concerning the appraisal. If the home is not worth the sales price then the buyer may be able to get out of the contract.

Escrow – This refers to the funds, assets or securities being held by a third party separate from the buyer and seller. The buyer will place funds in escrow as proof that they wish to go forward with the sale. Once the seller has met the conditions of the contract the funds will be released.

Disclosures – The buyer must be informed of various details by the seller prior to the purchase. Each area will have slightly different requirements for the disclosures in their location. An example would be the location of a home in a known flood zone. This would affect the homeowner's insurance and could affect the buyer's ability to pay.

Closing – This is the last phase of the property purchase. All parties involved in the transaction will meet at either an attorney's office or an escrow agent's office (title company). The seller, buyer, and any attorney will typically attend the closing. At the closing the seller will receive funds for the transaction and the buyer will sign the necessary documents for the loan. The deed will be transferred from seller to buyer. Finally, the closing costs will be paid based on the agreed terms in the contract.

Using FHA 203K Loan to Purchase a Fixer-Upper

Using FHA 203K Loan to Purchase a Fixer-Upper

Across Wisconsin there are a large number of short sale homes available to buyers.  A short sale is a home being sold for an amount less than the existing mortgage balance.  These homes often have a few cosmetic repairs that need to be made in order to make the home more presentable, if not safe.  For years the issue of repairing a home prior to purchase was a catch 22.  The bank or seller was not willing to spend extra money on a home that they are selling.  The buyer could not make the repairs because they did not legally own the home.  The FHA 203k loan solves that problem with ease.

Two Kinds of Loans

The Federal Housing Authority (FHA) offers a loan called the 203k mortgage, named after the code section where the loan is found in the FHA guidelines.  This loan is offered as a Streamline version and the regular version.  The streamline was designed to offer lower amounts designated for repairs and slightly less paperwork.  Both loans are ideal for Wisconsin homebuyers who wish to purchase a home in need of some repairs.

How the Loan Works

The loan program allows buyers to purchase a home based on the sales price.  In addition, the buyers can borrow extra money to make the necessary repairs. Once the loan is approved and closed, the extra money is placed in an escrow account.  The contractor that is doing the work will receive payment once the work is completed. This protects the borrower and the lender against problems with the repair process.

The amount needed for repairs is added to the loan for the purchase and the homebuyer makes one payment, at one interest rate, on the entire loan.  Since mortgage rates are so cheap right now it is a wonderful way to buy a home that may be priced below market value due to some simple fix-ups.

Loan Amounts

The Streamline 203k loan will allow Wisconsin homebuyers to borrow a minimum of $5,000 and a maximum of $35,000 to be used towards the repairs.  The regular 203k loan allows much more as a percentage of the sales price and the estimated appraised value after the proposed repairs have been made.  The regular 203k loan will need the involvement of an appraiser, home contractor and loan officer from the very beginning to make sure the loan and repairs meet the guidelines of the program

What Can be Done with 203k?

Wisconsin homebuyers often ask about the types of repairs that can be done with the Streamline 203k program.  The following list shows some of the more popular tasks accomplished using this type of loan

• New gutters and a new roof
• New Heating and air conditioning system or repairs to the existing system
• Plumbing updates and repairs
• Electrical updates and repairs
• Bath and kitchen remodels, to a lesser extent
• New flooring of any type; wood, carpet, tile
• Painting for both exterior and the interior
• New windows and doors
• Energy efficient appliances

The 203K loan allows many types of repairs and improvements that can greatly enhance the value of a home and give buyers a chance to purchase a place at a savings. This loan is ideal for Wisconsin short sales or foreclosures.

Original Post - Using a FHA 203K Mortgage for Rehab

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a FHA lender directly to learn more about its mortgage products and your eligibility for such products.

Getting Pre-Approved for a Mortgage Before Looking for an Evansville Home

Getting Pre-Approved for a Mortgage Before Looking for an Evansville Wisconsin Home

It should come as no surprise that the vast majority of home purchases involve some type of financing. In fact, a study by the NAR (National Association of Realtors) reveals that 90% of home purchases are financed.  This is especially true for people buying their first home.

When it comes to a home loan, most borrowers have at least a few options.  That is why it is so important for buyers to carefully go over the loan process and determine the right loan for their needs.

Get a Pre-Approval

It is for this reason that Realtors advise buyers to talk to a mortgage loan officer before placing a bid on any home.  Most Realtors have established relationships with a few lenders and can recommend a reliable source for financing to any potential buyer. Meeting with a lender will give the buyer the chance to find out what they are able to afford for a home price.

Purchase documents normally include a clause that require proof of financing within a certain amount of time.  The time limit is usually not very long, only 7 to 10 days. Talking to a lender first and arranging appropriate financing will make the whole process easier for the buyer and less stressful.

Understanding the Pre-Approval

A pre-approval is a letter issued to a borrower from a lending institution.  It means that a loan officer has looked over the borrower’s credit history, inquired about their income and savings, and has determined that the borrower should qualify for a mortgage. The pre-approval letter will outline the maximum amount for which the buyer can qualify.  Borrowers have the liberty to inquire about a pre-approval letter from multiple lenders but they need to understand an important fact.  Each interview with a lender will mean another check on the person’s credit which can lower the credit score.

The pre-approval can be provided to the listing Realtor for a home in order to initiate a bid on the home. Most home sellers will not entertain any offers without having some level of assurance that the buyer is ready and able to go through with the purchase process.

Getting the Right Pre-Approval

Everyone’s situation is different.  Some people have a significant down payment and can easily qualify for a mortgage loan with a bank or credit union.  Other people may have a limited down payment or some small credit issues and need to speak to a mortgage broker in order to find the right loan.  There are even a small number of sellers willing to entertain the idea of financing the purchase themselves, but only in certain circumstances.  That is why it is a good idea to talk to a Realtor and get some advice concerning which lender to contact.

Getting pre-approved for a mortgage before actually looking at homes will make the entire process much easier.  It will give the buyer a firm idea of their future payments.  It will also let them know the maximum amount they can spend on any home.  This gives the Realtor a price range to work with and can make house hunting much more efficient.

      

Mortgage Calculator for Purchase|Refinance

I wanted to bring your attention to a great tool available to you. Rock Realty's 'Mortgage Calculator', linked below, can help you with your important mortgage decisions. Whether you are buying new or refinancing, this tool can help you determine:

-Mortgage Payment
-Mortgage Principal
-Should I Refinance?
-Interest Only
-Affordability
-Paying More Each Month
-Real APR
-Payment Per Thousand
-Should I Pay Points
-How Much Income Do I Need?
-Rent Vs. Buy

and more...

Which Mortgage? FHA 203K or HomePath Loan

Short sales and bank owned properties can offer a great price point to the savvy buyer or investor. Typically though, these homes do require some amount of work and repairs. I've found that many properties just need some cosmetic ‘touch ups' like paint and landscaping. Others however may need significant remodeling, including drywall, roofing or windows.

In any event, having a mortgage available that gives you the option of financing these repairs is a huge advantage. The two most common options currently in the market are the FHA 203K and the HomePath loans. The Zillow article below goes over the differences in each.

Regards
Michael Collins, SFR
Short Sale & Foreclosure Resource

If you are in the market to buy a home, chances are that you have seen at least one property that is either a short sale or a bank-owned property.

And based on what I have seen, many short sales or properties that are currently owned by the bank are in need of a few repairs before anyone can live in them.

Which is why I get quite a few questions about two of the most popular loan programs designed to help homeowners finance needed repairs on a new home: the FHA 203k program and Fannie Mae's HomePath mortgage program.

One of the more common quick questions I hear when people are learning about these loan programs is:

"Which is better, the HomePath mortgage or the FHA 203k loan?"

The simple answer to this question is "it depends" and before I give you a simple formula that might help you choose between the two programs, here is a quick review of each loan program.

The FHA 203k and FHA Streamline 203k Loans

The FHA 203k loan program can be grouped into two different types of loans: the FHA Streamline 203k loan program and the FHA 203k loan. The FHA 203k streamline is designed to be a limited repair program and has simpler processes and no HUD consultant required like on the full FHA 203k loan. In my experience, the FHA 203k streamline is a more popular option since many of the needed repairs for bank-owned homes can be considered "cosmetic."

Highlights of the FHA 203k streamline loan include:

• It works very similar to a construction loan - it allows you to purchase a home that wouldn't qualify for FHA financing due to repair work being needed



• The loan amount is equal to the purchase price of the home plus the amount needed for repairs



• FHA 203k streamline program allows for repairs ranging from $5,000 and $35,000



• Qualifying for FHA 203k loans are the same as regular FHA loans



• Repair work cannot begin until loan closes and the money to pay contractors comes from an escrow account set up when the loan closed



• FHA 203k loans require UFMIP and MIP just like regular FHA loans



• Appraisal required



• Currently available for owner-occupied properties only although I have heard rumors of an "Investor 203k loan" coming soon.

Fannie Mae HomePath Renovation Loan

When the housing downturn began and Fannie Mae started owning more homes than ever before, one of the things Fannie Mae did to help move the homes to new owners was to design the HomePath mortgage program.

The HomePath mortgage program has two different programs within it - the HomePath loan and the HomePath Renovation loan.

For homes that are in need of repairs, the HomePath Renovation loan is the loan program that is often compared to the FHA 203k loan when weighing options.

HomePath Renovation loan highlights include:

• The property must be currently owned by Fannie Mae



• The loan amount is for both the home and the repairs required for the home



• Repairs can be up to 35% of the as-completed value, but not to exceed $35,000.



• Down payment requirements can be as low as 3%



• Fixed or adjustable rates are available



• No mortgage insurance required



• Investment properties or 2nd homes and investment properties are allowed



• No appraisal required



• Lenders can be difficult to find, not every lender is HomePath approved and many HomePath approved lenders do not offer the HomePath Renovation loans

HomePath Renovation Loan or FHA 203k Loan?

When deciding on financing for a home that is in need of repairs, the Fannie Mae HomePath Renovation loan program and the FHA 203k loan program are what most people are going to select.

Is there an easy way to select the "right" loan between the two?

Yes.

Which Loan Program Is Better?

Here is a simple way to choose the right loan program between the two if you are buying the home as your primary residence:

• Is the home owned by Fannie Mae?If yes, it probably makes the most sense to get a HomePath Renovation loan.



• Is the home owned by someone other than Fannie Mae? If so, then your best option is the FHA 203k loan.

While both the FHA 203k loan and the Fannie Mae HomePath Renovation loan programs are similar, I have found that for houses owned by Fannie Mae it usually makes more sense to go with the HomePath Renovation loan.

Which means the first question you may want to ask is:

Is this house owned by Fannie Mae?

And then you will have your answer.

> Use Fannie Mae Loan Lookup tool

Justin McHood works for Academy Mortgage and is based in Chandler, AZ. He is a contributor to Zillow Blog and has conversations about mortgages whenever he can. Learn more about Justin at http://www.mortgagecommentator.com/.

Bank of America is now offering Principal Reductions!

Wisconsin Short Sales
Madison Wisconsin Short Sale Realtor®
Janesville Wisconsin Short Sale Realtor®
Beloit Wisconsin Short Sale Realtor®

Bank of America is offering...PRINCIPAL REDUCTIONS!


You read that right..the nations largest lender is now going to offer a program to bail out underwater owners...here are the details directly from BofA:


CALABASAS, Calif. - Bank of America, a leader in developing and carrying out programs to help financially distressed homeowners, is leveraging the federal government's Hardest Hit Fund (HHF) initiative to begin pilot programs of principal reductions for customers in Arizona who owe considerably more on their mortgage than their property is worth in today's depressed market.


The bank has become the first major mortgage servicer to send letters of interest to homeowners who may qualify for HHF-supported principal reductions in these states. Previously, Bank of America began testing and implementing new programs for unemployed homeowners in several other states receiving HHF support.


"Bank of America remains committed to helping distressed borrowers remain in their homes through a variety of programs," said Terry Laughlin, executive vice president. "Since the Obama administration established the Hardest Hit Fund (HHF) initiative one year ago, Bank of America has worked closely with both the Department of Treasury and state housing agencies to design and implement the program to provide interim payment assistance to unemployed borrowers, as well as funding for loan modification assistance to delinquent borrowers. We are excited this program is coming to fruition."


Through the Arizona pilot program, Bank of America customers experiencing financial hardship may be eligible to have the amount owed on their mortgage reduced through matching contributions from the state and from participating mortgage investors. Bank of America has begun mailing letters to customers in those states who may qualify for the assistance based on state program and investor guidelines. The offers are being made proactively in conjunction with the solicitation process for the federal government's Home Affordable Modification Program.


Bank of America also is finalizing processes for a pilot principal reduction program with the Nevada Affordable Housing Assistance Authority and is in advanced discussions with the California Housing Finance Agency to begin a pilot program with that state.


Bank of America established its leadership in providing solutions for severely underwater homeowners last spring with an innovative principal forgiveness program for eligible customers under its own National Homeownership Retention Program. HHF will provide assistance to additional homeowners who, mainly due to drastic decreases in home values in the last three years, are upside-down on their mortgages.


The HHF unemployment program offers qualified borrowers mortgage payment assistance for up to 36 months while they are unemployed, depending on state program guidelines. Bank of America is currently involved in pilots of unemployment assistance programs in California, North Carolina, South Carolina, Ohio, Oregon, Lee County, Florida, and Washington, DC. Customers who are interested in these programs should work with their state housing finance agencies to determine their eligibility.


Bank of America will continue expanding these programs on a state-by-state basis as agreements are reached with interested housing finance agencies in other HHF-grant states.


All HHF programs are targeted to low- and moderate-income homeowners, and eligibility also depends on investor participation.


Bank of America


Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 57 million consumer and small business relationships with more than 5,800 retail banking offices and approximately 18,000 ATMs and award-winning online banking with 29 million active users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.


www.bankofamerica.com


# # #


Reporters May Contact:


Dan Frahm, Rick Simon or Jumana Bauwens, Bank of America, 1.800.796.8448


pressroom@bankofamerica.com

New 20 Percent Down Requirements for Mortgages

The government is busy meddling in the housing market again! First they promoted low to no down payment programs to inflate the real estate market. Now they are thinking of making 20% down the new 'norm' for mortgages. This may have been a good idea in 2004-2005 when the market and the economy was hot enough to handle a change like this, but not now when the market is so fragile.

When you put it in perspective, a prospective buyer will have to come up with $40,000 to purchase a $200,000 home. For home buyers in my area of Wisconsin, this is a whole year's wages. Do you remember the days when people could afford a home on one income?? Below is the Harris Real Estate Article that talks about some of the current facts.

Harris Real Estate Article
Here are the facts that you need to know:

* A proposal to federal regulations, called QRM (qualified residential mortgages) would mandate a 20 percent down payment for buyers wishing to qualify for a conventional, non-government- backed residential mortgage. Exempt from the requirement are certain QRMs; FHA and VA mortgages are also exempted.

* According to the National Association of Realtors, 60 percent of recent home buyers made less than a 20 percent down payment.

* The national group’s data also shows it takes 14 years for a typical person to save a 20 percent down payment to buy a median-priced home.

* Realtors say the proposed rule would not only affect buyers, but it would also affect the ability of home-owners to sell their homes, since there would be fewer buyers who could qualify for home ownership.

* Why is this happening…new government regulation! A provision in the Dodd-Frank Act signed into law last year requires that financial institutions retain 5 percent of the risk on loans they securitize. The purpose is to discourage excessive risk-taking and create strong incentives for responsible lending and borrowing.

“NAR firmly believes Congress intended to create a broad QRM exemption–strong evidence shows that responsible lending standards and ensuring a borrower’s ability to repay have the greatest impact on reducing lender risk, and not high down payments,” said the national group’s president Ron Phipps. “Saving the necessary down payment has always been the principal obstacle to buyers seeking to purchase their first home. Proposals that require high down payments will only drive more borrowers to FHA, increase costs for borrowers by raising interest rates and fees, and effectively price many eligible borrowers out of the housing market.”

WHEDA Advantage Loan Program

Are you a first-time buyer? Do you want an affordable home loan with a fixed rate and 100% financing? If so, then you are in luck. Wisconsin Housing and Economic Development Authority (WHEDA) has partnered up with Fannie Mae to bring affordable housing to qualified first-time buyers. You can find a link to WHEDA's site on Rock Realty's home page. Here are the features you will find on their site:

FEATURES AND BENEFITS

-Low cost, 30-year fixed interest rate – Ensures the rate on your mortgage will never increase

-$1,000 minimum borrower down payment – Reduces the cash you need to close your loan

-Reduced mortgage fees – Your mortgage will cost less thanks to the elimination of fees commonly found with other traditional loan products

-You may be eligible for the Federal First-Time Home Buyers Tax Credit if you enter into a contract by April 30, 2010 and close by June 30, 2010

-If you involuntarily lose your job during the first two years of your mortgage, WHEDA’s job loss mortgage payment protection will cover up to six months of payments.

There are eligibility guidelines as well as income and purchase price limits to this program. You can find them on WHEDA's site too. Buyers are required to take a home buyers seminar and pass the WHEDA pre-approval. These are good things. You should be educated on owning a home and the pre-approval varifies you ablility to own a home long term. Don't feel bad if you miss the tax credit that expires in May. Rock Realty offers buyers 1% of the purchase price to their closing costs.

There are new programs for those looking to purchase foreclosed homes or home owners wanting to make improvements and repairs to their home. You can find information on these programs with the same link. Good luck and please leave a comment.