From the category archives:

Mortgages

Buying A Condominium Using FHA Financing

by Bill Gassett on November 2, 2012 · 3 comments

Why Is FHA Financing So Popular?

 

Mike DunskyI am excited to announce guest blogger Michael Dunsky from Guaranteed Rate Mortgage who will be covering some of the terrific benefits to FHA financing when you are purchasing a condominium. Michael has been one of my preferred loan officers for years and always does an exceptional job with his clients. Check out Mike’s terrific article on why you may want to consider using FHA financing when buying a condo.

Let’s say that you want to buy a home but are not looking forward to shoveling snow or taking care of the yard. Or, perhaps you are looking to buy in an area where single family homes are too high for your budget. A great alternative is a condominium. Condominiums typically sell for less than single family homes and offer home ownership opportunities without having to worry about general maintenance and upkeep.

FHA Financing buying a condoThere are plenty of home loan options available to those purchasing a condominium but one particular type of home loan, FHA (Federal Housing Administration), offers the least restrictive qualifying criteria. FHA loans are government insured loans designed to help more people qualify and achieve the American Dream of owning their own home.

FHA allows for low to moderate income buyers to buy a property who may not meet conventional loan guidelines or may have been denied for conventional financing. In recent years FHA loans have become very popular given the absence of those more “flexible” loan options that have gone by the wayside in the mortgage meltdown a few years ago. FHA financing basically opens doors to folks who might not otherwise qualify for financing.

Many condominiums buyers are first time buyers and most first time buyers share similar characteristics that FHA appeals to. Usually, first time buyers don’t have a sizable down payment, there is often higher debt for student loans and simply not having much time in the workforce to save much, as well, their credit scores may not be that high due to length of time having active credit. FHA loans seem to have modeled their guidelines to these specific traits.

Qualifying for FHA Financing

Qualify for FHA LoanFHA allows for the following:

• Only 3.5% down payment instead of the traditional 5% down payment required on conventional loans

• 100% of the down payment can be a gift, compared to a conventional mortgage that requires borrowers to verify they have at least 5% of the purchase price from their own funds

• Lower minimum credit score than conventional loans. Most lenders allow for a minimum score of 640 for a FHA loan while conventional loans can require significantly higher scores depending on the amount of down payment. Some lenders will allow for scores lower than 640 under certain circumstances

• More flexible with the amount of debt a person is carrying compared to that of a conventional loan.

The other aspect of buying a condominium with FHA financing is making sure that the condominium project meets FHA’s requirements. This would be one of the questions to ask before buying a condo. There are specific guidelines in place to ensure that the condominium meets FHA’s criteria for a project to ensure it’s long-term viability. In keeping up with the times, FHA recently updated their criteria for certifying a condominium project as there were certain guidelines in place that were outdated for our current economic climate.

Why use FHA FinancingFor instance, if you are looking at purchasing a condominium unit in a city then it would not be uncommon for the building to have some commercial space (retail stores or possibly professional offices). It was not that long ago that FHA only allowed for 25% of the condominium project to be allocated for commercial space. The revised criteria now allows for exceptions up to 35% commercial space which will free up more projects to become FHA certified and, therefore, open the door for more home buyers.

Another guideline FHA addresses, and has recently amended, is to allow for greater flexibility for one or more investors who can now own up to 50% of the entire project. Previously, this was limited to just 10%.

The owner occupancy ratio should always be looked at when contemplating buying a condominium. The owner occupancy ratio is a simple formula, the number of units lived in by their owners divided by the total number of units in the project. FHA will certify a project as long as the percentage of owners renting their individual units does not exceed 50% of the entire project.

A condominium project is run just like any household or business. There are costs associated with running the project and there are fees that the unit owners pay in order to cover these expenses (commonly referred to as condominium dues or homeowner association fees- HOA fees).

One area that is closely evaluated is the condominium project’s budget. In order to add further protection to a condominium project and to ensure that there are sufficient funds available for general maintenance and upkeep of the building, grounds, and common areas, FHA requires that each condominium project have a line item for reserves in their budget of no less than 10% for additional maintenance and repairs.

Condominium BudgetOne aspect of managing the finances of a condominium project is to ensure that no one runs away with the money. What’s to stop a trustee, the homeowner’s association, or independent management company responsible for all of the condominium project’s finances from mishandling or stealing the money from the budget?

FHA directly addresses this by requiring Fidelity Bond Insurance, also known as “Employee Dishonesty” or a “Crime Policy” is put in place for all condominium projects with 20 units or more. This is yet another protection for the unit owners to help sustain the viability of a project. The last thing you want as a unit owner or potential buyer of a condominium is to find out is that there are insufficient funds in the budget to keep the property looking fresh and clean along with upkeep and general maintenance.

In hard economic times some unit owners may fall behind on their HOA dues/fees and if a significant numbers of owners fall behind paying their HOA dues then this can materially impact the finances and viability of the entire condominium project (not to mention all of the unit owners that may, in fact, have to cover those costs at some point).

Part of FHA’s criteria for certifying a project requires that no more than 15% of all unit owners can be over 60 days delinquent on their condominium dues. This is one area that should be looked at closely prior to any purchase of a condominium. There are many more guidelines that FHA has in place for the sole purpose of good lending practices but these are the most pertinent in today’s lending environment.

Although the process for FHA certification of a project can seem a little excessive, I fully believe that any soon-to-be buyer of a condominium will appreciate that FHA has their best interest at heart.

If you are considering buying a condo and want to work with someone that is very knowledgeable about mortgage financing, has great service skills and competitive rates, I would give Mike a call!

Michael Dunsky can be reached at Guaranteed Rate, Inc which is located at 38 Pond Street, Suite 208  Franklin, MA 02038

Phone 508.528.1800

Michael.dunsky@guaranteedrate.com

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What is Real Estate Title Insurance

by Bill Gassett on November 29, 2011 · 8 comments

Real Estate Title Insurance Explained

Real Estate Title InsuranceWhen purchasing a home one of the things that buyer’s will be asked is whether or not they want Real Estate title insurance. Often times I find that home buyer’s lament over this decision because of the expense involved. Real Estate title insurance is certainly not cheap!

While title insurance is a one time expense, it can be disturbing for a buyer tight on cash to have to come up with such a large unexpected expenditure. Real Estate title insurance can easily run into thousands of dollars in a home purchase. Unlike other insurance policies there is no monthly premiums with title insurance. It is a one time expense covering the owner until the property is sold.

One of the questions I get asked a lot by my clients is “should I purchase title insurance’?

Let me first explain what title insurance is and what it covers. Real Estate title insurance is a type of insurance that covers financial loss from defects in title to real property and from the invalidity of mortgage liens.

A title policy is put in place to protect an owner’s or lender’s financial interest in a property against loss due to title defects, liens or other matters. The insurance will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the monetary loss incurred, up to the dollar amount of insurance provided for in the policy.

In my experience all major lenders require title insurance to protect their interest in the mortgage secured by real estate. This is called a lenders insurance policy.  An owner’s insurance policy is not required but in my opinion is a highly valuable insurance that is risky not to have.

There is an opportunity for a buyer to get a substantial discount when they purchases both a lenders and owner’s policy at the same time. This is called a simultaneous issuance. For an enhanced policy, it runs about $4.00 per thousand based on purchase price + $175.00 in Massachusetts. This is a one time premium paid at closing which lasts the lifetime of the property ownership.

The Real Estate Title Search

Prior to a buyer taking title to a property or completing the “closing”, the lender through which the borrower is getting the mortgage will have a title search done on the Real Estate.

The purpose of the title search is to find any defects in the title. There could be any number of defects including liens, unpaid Real Estate taxes, judgments, unpaid condo fees, or others.

If title defects are found the buyer’s or lender’s lawyer will inform the buyer of such defects and then work towards getting them removed so that a clean and marketable title is given to the buyer.

Title insurance becomes of great value when something is discovered in the future that was not found when the initial title search was done.

A Title search starts with the most recent deed searching the grantees name (the person who holds title) back in time until the deed from which the grantee acquired the property is found.

That grantors name is then searched back in time in the grantees book to find when the grantor acquired the title as grantee. The typical title examination goes back fifty years but title insurance would cover beyond the fifty year search.

Anyone who has not purchased title insurance could surely tell you what a nightmare it can become without it!

Common Reason For Title Insurance Claims

Example of some of the more common reasons for claims against a Real Estate title insurance policy are as follows:                                                                   Real Estate Fraud

  • False impersonation of the true owner of the property
  • Forgery of the deed, releases, or wills
  • Real Estate fraud
  • Missing or undisclosed heirs to the property
  • Any Instruments executed under invalid or expired power of attorney
  • Mistakes in recording legal documents
  • Deeds by someone of unsound mind
  • Deeds by a minor
  • Misinterpretations of wills
  • Deeds with misrepresentation of marital status
  • Liens for unpaid estate, income, inheritance,  or gift taxes

For an astute buyer who really thinks about the expense of title insurance the follow up question I get is why do I need it if the lender is going to have a policy anyways?

The easiest way to answer this question would be to ask is what would you do if one of the above title defects were discovered and the attorney who did the title search was no longer in business? While you could certainly sue the attorney for negligence if he was still around practicing; what if he was not? You would have a very large issue on your hands! To be clear an attorney would only be responsible for negligence not the issues outlined above. This is why it is important to have title insurance!

One other important note about Real Estate title insurance:

A federal law called the Real Estate Settlement Procedures Act (RESPA) allows the individual homeowner to choose a title insurance company when buying or refinancing residential property. Most of the time, homeowners do not make title insurance decisions for themselves.

They are typically handled by their lender’s or attorney’s choice; however, the homeowner does retain the right. RESPA makes it unlawful for any lender, attorney, or Real Estate agent to mandate that a certain title insurance company be used. Doing so is a violation of federal law and any person or business doing so can be heavily fined or lose their license.

Section 9 of RESPA denies a seller from mandating a home buyer to use a specific title insurance company, as a condition of the sale. Buyers may sue a seller who violates this provision for an amount equal to three times the cost of all charges related to the title insurance.

Some of the most prevalent title insurance companies are Fidelity National Financial, First American, Land America, Stewart and Old Republic.

In my mind having an owners insurance title policy is a no brainer and is certainly something you should consider unless you absolutely can not afford it! A title policy can be purchased in the future should you not have the funds available at closing time.

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About the author: The above Real Estate information on Real Estate title insurance was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 25+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Medway, Franklin, Framingham, Grafton, Hopedale, Mendon, Upton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, Millbury, Worcester, Sutton and Douglas.

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Credit Scoring Impacts Short Sale vs Foreclosure

by Bill Gassett on October 11, 2011 · 24 comments

Short sale or foreclosure?It is probably safe to assume that most consumers like to work with folks they know can be trusted. In Real Estate, like some other businesses there are those that can always be counted on for delivering great advice and others that only care about their own pocket book.

I always tell people some of the best Real Estate agents are those that don’t NEED to make a sale! It makes perfect sense because an agent that NEEDS business is far more likely to tell a buyer or seller something they want to hear rather than the truth.

Short sales unfortunately are a specialized Real Estate transaction where information is often times bandied about with no basis of fact. Many Realtors blindly go around telling people in financial distress that a short sale is better for their financial future because their credit score will not be impacted like going through a foreclosure.

Folks this could not be further from the truth! While there are certainly advantages of pursuing a short sale vs foreclosure, credit scoring is NOT one of them. There will be plenty of Realtors that will read this and argue with me telling me I am wrong.

As a Realtor who is tech savvy and social media connected you will see many of my articles in places such as Linkedin, Twitter and other Real Estate forums.

They will see some of my short sale articles and flat out tell me that I have incorrect information. When I mention the credit scoring impact of a short sale compared to a foreclosure is just about the same they scowl in disbelief. They will tell me I don’t know what I am talking about because they just learned differently at some short sale course their local Real Estate board was putting on. At this point I will be laughing because the people that teach these courses are usually Realtors that couldn’t make it in the business. They teach this nonsense because it is propaganda that helps get Realtors more business.

By now you are probably thinking how do I know the credit scoring impact is similar in these two financially stressful events. You have every right to be wondering! I know because I go right to the source. My FICO is the governing body for credit scoring including what happens in both a short sale and foreclosure.

Short sale vs foreclosure credit scoring impacts

Since I am often getting challenged on the credit scoring impacts by other Realtors and get asked all the time by my clients, I am going to share a very interesting study that was conducted by Fair Issac corporation.

The FICO study took various types of mortgage delinquencies on three credit bureau profiles of consumers that had scores of 680, 720 and 780, respectively. The study focused on consumers whose credit characteristics (e.g., utilization, delinquency history, age of file) were typical of the three score points considered. All of the consumers had an active currently-paid-as-agreed mortgage on file.

Results of this credit scoring study are shown below. The first chart shows the impact on the credit score for each stage of delinquency and the second shows how long it takes the score to fully “recover” after the fact including a short sale or foreclosure.

Credit Scoring Short Sale vs ForeclosureWhat you can easily see by this  study is that there is a negligible difference in credit scoring when comparing a foreclosure or short sale. While it seems unfair, those that had a higher credit score to start will see a greater scoring drop. In addition, the higher starting score, the longer it takes for the score to fully recover.

While there is a minimal difference in scoring impact between moderate and severe delinquencies, there may be a significant difference in time required for the score to recover completely.

These statistics are right from the guys that make credit scoring. They are not opinions. This is actual data that was put together and sourced by FICO themselves.

Benefits of a short sale vs foreclosure

So what are the benefits of going through a short sale rather than letting a lender foreclose on your property? The biggest advantage is that you will be able to buy another home in the future a lot quicker than you would with a foreclosure. Generally speaking the turnaround time for getting another loan after completing a short sale is two to three years. In a foreclosure it is typically five to seven years. There are a number of circumstances that can affect the time frame including whether the loan is FHA, Fannie Mae or Freddie Mac. For a complete financing guide see buying a home after short sale or foreclosure.

One of the other big factors you need to consider is your employment status. There are a number of large companies that will not hire a new employee that has a foreclosure on their resume. While this may not seem fair with all the financial turmoil that has taken place over the last five years, employers look at a foreclosure as a black mark on your record. In other words when you short sale a property you are owing up to a financial commitment. In a foreclosure you are walking away and taking no responsibility for your debt.

The last reason why more and more will choose a short sale over a foreclosure is just the sheer embarrassment of going through a foreclosure proceeding. In some states an auction is held right on the front lawn of the property. Who wants to lose their home and then have salt rubbed in the wound by watching a bunch of buyers compete over it. This is an unsettling experience for most.

The goal of almost anyone that goes through a short sale or foreclosure will be to improve their financial stability moving forward. Of course improving the impact a short sale or foreclosure had on their credit scores will typically be one of the first areas that people look at once they are back on their feet. There are certain things you can do to help fix your finances after a short sale or foreclosure that are covered in this helpful article.

Unfortunately, sometimes people just don’t realize they have options and just lose their home to foreclosure. Many have never taken the time to do any research and just assume there are no alternatives. A short sale can be a great alternative for some home owners – best of luck if you are one of them!

If you are need to short sale your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holden, Holliston, Hopedale, Hopkinton, Medway, Mendon, Millbury, Milford, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, Sutton, or Worcester get in touch! I would love to interview for the chance to represent your short sale transaction.

I am successfully completing short sales through out the Metrowest Massachusetts and Worcester County areas. So far, knock on wood, I have a 100% success rate for short sale approval! Short sales are difficult transactions that are critical to have the right Realtor representing you. Do not make the mistake of picking a Real Estate agent that does not have experience closing short sale transactions.

If you are outside of the Metrowest/Worcester Massachusetts area and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.

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About the author: The above Real Estate information on Credit scoring impacts of short sale vs foreclosure was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 25+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

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A Guide To Mortgage Equity Loan Options

by Bill Gassett on September 19, 2011 · 1 comment

Mortgage Equity Loan OptionsWhen looking to take money out of an existing home or other Real Estate borrowers often have a decision to make on what is the best method to do so.

There are basically three financing options that are available to home owners. These include a cash out re-finance, home equity loan or a home equity line of credit (HELOC). Determining which of these type of loan options will work best basically comes down to what purpose the money is going to be used for.

Unfortunately being in the Real Estate field, I often come across folks who have over extended themselves and find that they have created undue hardships. Going back ten years ago this was not so much of a problem as Real Estate markets around the country were booming and a home was an investment windfall.  Every few months the value of homes would continue to rise and did so for over a decade. Of course all good things must come to an end eventually and now we are left with property values decreasing in most areas.

When the economy and Real Estate values are soaring it is hard not to look at a home as a giant piggy bank from which you can tap at a moments notice. When times are tough however, you may regret taking your equity for granted by pulling it out of the home.

Below is a guide to help you determine whether borrowing against the equity in your home via a home equity line of credit (HELOC), home equity loan or a cash out refinance makes the most sense.

Home Equity Line of Credit (HELOC)

Home equity lines of credit work much like credit cards do. As a borrower you are given a credit limit up to which you are allowed borrow. Also similar to credit cards is the fact that the loan is open ended and carries an adjustable interest rate. Home equity lines of credit are tied to the prime rate as a basis to lend money.

Typically borrows can expect to pay the prime rate plus 2% as an example. Like credit cards HELOC’S can be closed by lenders at any point in time. Like any other loan it is prudent to shop around for the best rate and terms. Make sure you only borrow what you can afford as this loan is directly tied to your home and if you can not afford to make payments you could potentially lose your home to foreclosure.

The biggest advantage to a home equity line of credit is you can borrower whatever you need, up to whatever amount the lender has set, whenever you need it. The big draw back however is the lender can shut off the line of credit if the value of your home falls, your credit takes a hit or if the lender just decides they don’t want to offer you credit anymore.

Home Equity Loan

Home Equity Line of CreditA home equity loan is a form of a second mortgage against your home. The terms of which can vary greatly from a first mortgage. With a home equity loan you borrow a set sum of money at one time and it is paid back over a certain amount of years and interest rate that can vary greatly.

Often times a home equity loan has a fixed interest rate but also could be variable as well. Like either of the other financing options if you don’t pay it back the lender would have the option to foreclose!

Most of the time a home equity loan option is used for a specific purpose where the cost is known ahead of time. For example paying for the kids college education or buying a new car. What you need to decide is whether you would get more favorable loan terms by going this route or by getting an unsecured loan somewhere else such as at credit union or local lender. Sometimes this decision boils down to how conservative you want to be. You may get a better interest rate by getting a home equity loan but is it worth the risk of having it secured against your home?

Some borrowers would say no. If you happen to lose your job and have an equity loan against the family home for $150,000 this may not put you in a comfortable position. You should also check to see if there are any penalties for paying off the loan balance early. A number of lenders will charge a pre-payment penalty fee if you sell the home.

Cash Out Re-finance

A cash out re-finance is when you pay off your existing loan and get a new loan for the old mortgage balance plus whatever additional amount you need to borrow plus any closing costs. If the cash out refinance interest rate is lower than the existing mortgage rate, this option is probably going to be the best route to take. Most of the time you are going to be able to get a better interest rate with a 1st mortgage than going to the 2nd mortgage option. It is likely cheaper to borrow this way than having the combination of two mortgages. This is especially true when fixed rate mortgages are very low.

Nowadays when getting any type of mortgage it really makes sense to look over your ability to pay it back. The last thing you want to do is find yourself in an uncomfortable financial situation. Carefully studying the above home equity mortgage scenarios to determine which fits your situation best is a good business decision!

Other Mortgage articles worth a look:

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About the author: The above Real Estate information on A guide to mortgage equity loan options was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 25+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Medway, Franklin, Framingham, Grafton, Hopedale, Mendon, Upton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, Sutton, Worcester, Natick, and Douglas.

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Increasing a Credit Score With Home Finance Tips

March 7, 2011

Tweet Credit scores can have a dramatic effect on a borrowers ability to get the best rates for many types of financing including a home mortgage and a car loan. If your credit score does not meet minimum standards you may not even have the ability to get a home mortgage period! There are a [...]

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Fannie Mae Mortgage Interest Rates & Costs Rising

January 30, 2011

Tweet Guest blogger Michael Dunsky from Guaranteed Rate is back again to take a look at the recent announcement by Fannie Mae that a borrowers costs and/or interest rate will be rising in the near future. Michael comes to the Massachusetts Real Estate blog on occasion because of his extensive knowledge on what is going [...]

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203K Rehabilitation Loan

December 13, 2010

Tweet Guest blogger Michael Dunsky from Guaranteed Rate Mortgage is back to take to help review a popular mortgage program known as the 203k rehabilitation loan. The landscape of the housing market all over the country has changed drastically over the last few years. Foreclosures and short sales have become the norm not the exception. [...]

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Great Reasons to Refinance a Mortgage

October 26, 2010

Tweet Reducing your interest rate When interest rates are at record lows it creates an environment that is ripe for refinancing a home mortgage. There is no question that a mortgage on a home is usually one of the largest financial obligations that you will have in your life. It stands to reason that if [...]

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USDA Loans For No Down Payment Financing

July 7, 2010

Tweet A USDA guaranteed loan is a government insured 100% purchase loan. This type of loan is only offered in what is considered a rural area. They are serviced by direct lenders that meet Federal guidelines. USDA loans (US Department of Agriculture) aka Section 502 loans are an excellent mortgage vehicle for those home buyers [...]

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Fixing Credit Report Errors

June 7, 2010

Tweet There is no question that getting a home loan today is far more difficult than in years past. Gone are the days where anybody that had a pulse could speak with a bank or mortgage company and feel confident they would walk away with a mortgage. When you are looking to make a home [...]

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