First Time Homebuyers – Page 6

No Credit Does NOT Mean “Bad” Credit

No credit means just that: here’s a person who has no established credit history.

I heard it again tonight from a client who’s looking to buy his first home for his family: he thought because his wife had no credit that meant she had “bad” credit.

This is NOT TRUE. False. Fallacy. Myth. Mis-Information. Incorrect assumption. Bad Medicine (oh, wait, this blog is NOT “Dances With Wolves!” Scratch that last part)

If a person has no credit that just means the person has no credit score and no established credit history that a financial institution can use to determine credit-worthiness for approving a car loan, student loan, personal loan, credit card, line of credit, checking account, car insurance, or a mortgage loan. No credit means just that: here’s a person who has no established credit history.

Bad credit means just that: BAAAAADDDDD CREDIT!!! When a finance professional reviews a credit report with bad credit we encounter such things as charge-offs, collection accounts and judgments. Maybe the person owes money to a former landlord or a utility in the form of a judgment. Maybe the person had a checking overdraft account that went unpaid and ultimately wound up with a collection agency. Maybe the person borrowed a book from the library and never returned it thus racking up late charges eventually resulting in a collection account (yes, I’ve seen it), or, MAYBE the person didn’t show up for jury duty and has a judgment for a fee incurred as a penalty for not reporting to jury duty from the County Clerk’s office (I can’t believe I capitalized that for a person that sues people for not showing up for jury duty).

All of that stuff is what you can easily see is BAD CREDIT. It’s NOT “no credit.” There’s some form of credit in there and it’s bad. And it’s on the person’s credit report.

Those other folks—like my client’s wife—who don’t have any credit appearing (whether Good, Bad, or Ugly), those folks have NO CREDIT.

There’s a difference. And with FHA mortgages, a person with NO CREDIT has a chance of building an alternative credit profile and getting approved for an FHA Insured mortgage loan.

The person with BAD CREDIT (and no other credit) has less of a chance of getting approved for such a mortgage loan. Let’s say “zero” chance, and leave it at that.

But get that idea out of your head right now about No Credit meaning “Bad” credit.

Hope that helps!

Erica’s Mom is Harrassing Her to Buy A House!

My Mom is harrassing me to buy a house. She keeps telling me I have to get this $8,000 stimulus refund and I have to close this year!

I met with Erica this evening to prequalify her for a mortgage for a 2 family house she wants to buy in the Bronx. I gave my usual “tcurranmortgage” mini-homebuyer-seminar, not knowing when to shut up and stop talking (that’s why Gary set up this blog when he built my website four years ago; he knows me too well!) as usual.

Near to the end of our visit, I mentioned to Erica that Uncle Sam was going to send her a check for $8,000 for buying her first home this year. Erica responded by telling us, “Yes, I know. My Mom is harrassing me to buy a house. She keeps telling me I have to get this $8,000 and I have to close this year!”

WOW.

YAY to Erica’s Mom! YAY to President Obama and his 2009 Stimulus Package and the $8,000 Refundable Tax Credit!

Just FYI: the tax credit is a truly refundable credit of either $8,000 or 10% of the purchase price of the house (whichever is lower; in NY, that’s going to be the 8k!!!). You don’t have to wait until 2010 to get the cash in your wallet. You can file an amendment to your 2008 tax return and get the money this year. There are restrictions, so be sure to check out the IRS website HERE to verify. You can even download the appropriate filing schedule to bring to your tax professional to file the amendment. Get to it so you can heed Erica’s Mom’s haranguing: GO GET THE MONEY!!!

Thanks Erica for the inspiration for tonight’s blog.

How-To Make An Offer: Redux 2009

Check out my Re-Posted article on making offers and you, too, can get the home you want at the price you want to pay.

I like to share my professional and personal experience with HomeBuyers. To that end, I created this blog four years ago. I’ve written extensively about the experience of buying a first home, especially with regards to negotiating with Sellers.

As the Spring Buying season gets underway (and it is DEFINITELY doing so as witness recent activity within my market), I thought I might Re-Post one of my blog articles about how-to make an offer to buy your first home. There is a definite process to making an offer as you will see in the article. Not only did I present information from the “old-fashioned” way of buying a home through a Realtor, but I seeded the article with much that I had learned as a mortgage professional. In my experience, this is a technique that is tried and true and it WORKS.

When Buyers ask me, “Hey Trevor, how do I get a sense what the Seller’s “real” price is?” I respond: “MAKE AN OFFER!”

When Buyers like a house but realize it needs updating, or, the house location is great for their needs but the house itself isn’t quite right, thus leading in both instances to a desire to pay substantially less than the asking price, I recommend those Buyers, too, use the Offer technique described in my article.

Too often Buyers look at homes they really like but walk away without making an offer. In New York State, until you sign a contract of sale, you can make as many offers on as many houses for whatever prices as you like without being committed to a danged thing. Use the Offering technique to get what YOU want. In today’s Buyer’s market this technique is useful to get unrealistic Sellers shaken loose from the idea that their home is still worth what it was in 2005.

Try it and you’ll find you get results when you are dealing with what I consider to be “serious” Sellers and Realtors. The method also helps you weed out unrealistic Sellers from your search for a home. It’s true, there are Sellers out there who aren’t serious. By using my offer method you discover quickly and avoid wasting your time dealing with them.

Let’s talk about Realtors for a moment. With the market in such disarray, many, many Realtors have departed the real estate business; they could not earn enough to pay their bills. They have moved on to take salaried jobs elsewhere. You would think this cleansing process would leave only serious real estate professionals, those who are earnest in their desire to adhere to professional standards and ethics. Too, you would think the part-time Realtor, the “dabbler” if you will, couldn’t possibly survive. In both cases your thinking would be wrong. I’m sorry to report that I’m still coming across situations where Buyers are working with less-than-professional-Realtors. Unfortunately, this can affect a Buyer because you don’t get the high quality of professionalism that you deserve. In a difficult market where Sellers are unsure of their course of action the results can be disastrous. The Realtor’s role is to bring Buyers and Sellers together. A seasoned professional does so ethically and with quality sales techniques. The Pro doesn’t use sales “mumbo-jumbo” instead adhering to the idea that a good salesperson listens to the needs of the customer/client and finds a way to satisfy those needs. The Seller wants the best price in a “Buyer’s Market” and the Buyer wants the home they love without over-paying. Quality Realtors make that happen.

My experience with many part-time Realtors is they don’t have the resources to find the right home for their Buyer. Neither do they have the time nor the inclination for lengthy negotiations.

Many of those “Boom-Time” Realtors who made a killing selling homes to anyone with a pulse just don’t care to understand the finer points of being a good salesperson. In an attempt to survive they are still using the methods that sold homes four years ago. For example, I had a Realtor tell one of my clients at an open house that he had “…better hurry up and make an offer because there are 3 other really good offers on the table.” WHAT!?! In this market that cannot possibly be true. That’s “Boom-Time” selling, not Buyer’s Market professionalism.

My Buyer tested the waters using my offering technique. The offer was neither accepted nor countered. We do not believe the Realtor even presented the offer to the Seller, a violation of New York State law. My client’s offer was very reasonable considering the market conditions, their seriousness as qualified homebuyers, and the fact the house needed $30,000 of updates. The Buyer used the offering technique to discern if the Seller was serious about selling the home. Clearly the Seller was not, or, as I suspect, the Seller’s Realtor was a substandard salesperson. The house is still on the market a month later. I guess the other “really good offers” just didn’t work out (if they existed at all).

My client, on the other hand, has gone on to find a superb and experienced Realtor after using my offering method to walk away from a good house with a bad situation.

Check out the article and you, too, can get the home you want at the price you want to pay. As I have often said around the internet after posting advice on one forum or another, “Hope that helps!”

Intangible Benefits of Homeownership

I don’t think my radar is any more tweaked than usual, but I did pick up quite a few quotes in today’s NYTimes.com which point to the American Dream of homeownership and the “intangible benefits” of same.

I have long said that you simply cannot put a number to quantify the intangible benefits of homeownership. When you live in your own home there is something that changes within you, there is a feeling which you simply can’t express with a number such as “4% increase in property value.”

My entire career as a mortgage professional has been spent helping people who think as I do, who “feel” it makes complete sense to own their own homes. These folks focus on the monthly payment—can they afford to own a home—then decide to move forward if that payment fits. They move forward regardless of the person sitting in the White House, regardless of interest rates or property values or what the newspapers say about it (“Buy NOW! Real estate always goes up!” or, “Worst time to buy real estate!”).

These folks know deep down inside there is something they will receive that you can’t put into numbers, and only rarely into words, that just makes it feel like you did the right thing when you put it all on the line to buy a home.

’nuff said from me, here are some quotes (with the links) from today’s NYTimes.com:

From “The Backyard In New York City-An Urban Oasis” (The article describes the joys and rather unusual circumstance of a backyard within the urban confines of New York City)—NYTimes.com August 31, 2008

“”I wish they’d pass a law,’ said Rebecca Cole, a designer of high-end backyard, terrace and rooftop gardens, ‘that if you have outdoor space you have to put something on it because the rest of us want it.’”

“’One of the reasons we love it, it’s garden to garden,’” said Ms. Franklin

My Fave Quote from the article:
“At night, after putting their sons to bed, they set up a folding table to sip cocktails and grill by tiki candles and music on the radio while counting their blessings, as Mr. Pinn says: ‘A house, two kids, two cars and a lawn.’”

I don’t detect a single word about “ROI” (Return On Investment), the state of the economy and the effect on property values, or the mortgage meltdown of 2007. Nope, this is what the folks are talking about:

“They consulted neighbors who were also fixing up their yards. ‘We get together over drinks and talk about seeds,’ Mr. Pinn said. ‘It’s kind of an odd conversation for the city.’”

Instead of watching the value of his property ticking up or down:

“…weekends often find him pushing a manual mower back and forth across the baby lawn but he doesn’t mind. ‘It’s a little therapeutic,’ he said. ‘I get out there and do my thing. It kind of softens up the hard life of New York City.’”

Another article on NYTimes.com reports on the unique penthouses being constructed atop an apartment building in Manhattan! The penthouses look like quaint little suburban tract homes. But the most interesting part of the story is the reaction of neighbors watching these mini-Manhattan-miracles make their way onto the (above) streetscape:

“Ms. Gavilanes found the penthouses alluring. ‘I would get a car,’ she said, ‘and put it out in the driveway. And then I’d add a white picket fence, and AstroTurf. Maybe have a golden retriever playing in the yard.’”

Even Jaded New Yorkers Are Intrigued By The Little Houses On The Roof. —NYTimes.com August 31, 2008

I’d like to say, “Only in New York” but the fact is, these articles/comments all reflect the deep-seated understanding that there is something special about owning a home. That understanding isn’t unique to a bunch of New Yorkers, either. I’ve believed it for so long, I’ve forgotten just how long. And I’ve defended this intangible benefit vehemently, even during the “fantasy boom” when all the rage was “values going up, up, up,” and then later during the meltdown when all the pessimists said, “Don’t buy NOW. Wait ’til the prices drop.”

You can’t put a price on this stuff. Period.

Last Night’s Save: Another Buyer Rescued

I did it again last night: I wrote a loan application to save a purchase where the Buyers had gone to two other mortgage companies. Those companies couldn’t find a way to approve their loan request.

The mortgage biz ain’t rocket science. Why is it so difficult for mortgage people to get their act together?

I met a couple last night who are purchasing their first home. They have good credit, they work hard and they are receiving a gift of $40,000 from her Mom to buy the home. Her aunt attended our meeting too because she is cosigning on the loan with them.

When this situation was first presented to me by the Realtor the day before, I kept thinking there must be something I’m missing or something really bad about this loan application that the other companies can’t get it done.

I knew the fundamentals for mortgage prequalification were in place. I had spoken briefly to one of the clients on the phone; the rest of the information had been provided by the Realtor. I saw a potential “save” of this loan application using an FHA Insured mortgage. FHA is known as “the story loan” and, if you know your guidelines, you can help a lot of folks achieve their dreams of homeownership.

I came to our meeting at the real estate office warily and with an exit strategy so I wouldn’t look too foolish. I had told the Realtor the night before that all looked good and that I could find a loan approval. Now my reputation was on the line, and I hadn’t even met the clients yet.

I continued my wary thoughts last night. I grilled the clients with lots of extra underwriting-type questions just to get to the root of the problem. After two hours of this and a call to my Ops Manager (the smartest man I’ve ever worked with in the mortgage biz), I had the clients sign the loan applications and we were on our way to obtaining a loan approval and a closing.

The issue at hand was the husband’s employment history. At first blush it seemed awfully spotty. But, when the time was taken to sit there with a blank sheet of paper and note the dates and the continuity of same, well, then the puzzle was solved. The rest of the qualifications were fairly straightforward.

I’m still scratching my head wondering why the other mortgage “professionals” couldn’t get this done. But, then, a lot of the people remaining in the biz grew up during the fantasy boom when all you had to do was take someone’s pulse to approve a mortgage loan. A loan officer didn’t have to actually “think.”

I must confess, too, that as I wrapped up the paperwork, photocopied the ID’s and asked the clients for referrals, I had a nagging suspicion that I was missing something. In the end, I realized my experience of having sat through thousands of interviews like this had served me well. The “detective work” was rigorous, leading me to solve the problem; the rest was automatic.

I guess experience really does count for something. That and a thorough knowledge of FHA underwriting guidelines got me through to a successful conclusion.

Note to Sellers: CHILL OUT!

Holy Cow! You would think the market was still red hot the way Sellers are (still) behaving! Either they have no patience with the new (difficult) paradigm of mortgage financing or they still think their homes are worth $42Million!!!

Really, of late I’m seeing this ridiculous attitude from Sellers threatening to kill deals and hold the Purchasers’ downpayments all because the process of obtaining financing is more difficult and thus slower than it has been in recent years.

What part of: THE BOOM WAS AN ANOMALY or HELLO? IT WAS A FANTASY don’t these people understand???

I hired a new loan officer this week. He related a story of a Seller who legally threatened to cancel the transaction (serving a “Time Is Of The Essence” letter on the Purchaser) after only 4 weeks. The Purchaser was in the process of obtaining a gift from a relative for the extra $5,000 they needed to close. This can be a rather delicate process of asking your family for help to buy a home, so it can take a couple days.

When the Purchaser got the news about the cancellation threat—the TOE—they were so infuriated, the let the gift go and ultimately were denied for the mortgage because of insufficient assets to close. Stupid Seller lost a qualified Purchaser through lack of patience. I’m sure there are four other Purchasers lurking in the wings ready to step in and pay full price and close in 36 hours, NOT!

I have a loan closing this Friday where the poor Purchaser went to two other mortgage companies before finding his way to us. We got the loan done in a fairly timely manner (six weeks), but not without much travail and anxiety. Meanwhile my telephone blew up everyday as I had Realtors, Attorneys, the Purchaser and the Seller calling me with one question: “When are we closing?”

Fortunately my background is in customer service, so I know how to field such calls. But ultimately, I can’t answer the question, literally, until the closing date is set.

Two and a half weeks ago, the Seller served a TOE (Time is of the Essence) letter on the Purchaser. We got the loan cleared in time and scheduled a closing for the day after the TOE date. Pressure relieved, everyone got into place to attend the closing.

But then we discovered the Seller wasn’t even truly ready to close! Apparently there were documents needed from the condominium association that had never even been requested by the Seller’s attorney! So, even if the Buyer had shown up on the TOE date with cash in hand, there would have been no closing! How did they have the nerve to threaten to cancel and they were not truly ready to close?

Where do these people find the gumption to be so impatient and arrogant? Do they even READ the newspapers?

Then there are the stories I’m still hearing from Buyers about prices.

Granted there are some crazy Buyers out there who think EVERY house is in foreclosure and can be bought up for fire-sale prices; those Buyers are not serious at all.

The serious Buyers, on the other hand, the ones who truly want to own a home, are making offers on homes, and discounting from the asking price by what I would say are reasonable percentages. For example, a list price was $485,000 for a 2 family home, and the Buyer offered $460,000. That’s not ridiculous, nor is it insulting. The Seller wouldn’t even counter-offer!

A Realtor yesterday showed me a listing he just took. We all know the home isn’t worth a penny more than $575,000 and will probably sell for around $550k-560. The Seller insisted at the listing meeting that the Realtor take the listing at $629,000. Absurd. Do you want to sell or not Mr. Homeowner?

These Sellers are still thinking there are fourteen Buyers for every home wandering the streets willing to pay top price and carrying wads of cash in their pockets so they can close in ten days. Wake up call for Mr. and Mrs. Seller: THOSE DAYS ARE OVER!

I want to send a package containing a GIANT CHILL PILL to each of these Sellers with a note that says, “Hey Seller, CHILL OUT!”

Comments are open if you wish to comment on this or any of my other articles. Comments are subject to moderation, so please do submit your comments.

It’s All About the Monthly Payment

I learned early on one fundamental of buying a home: it’s all about the monthly payment. If you can’t afford the payment, you don’t buy the house. Pretty darned simple math, really.

Truly, the monthly payment is the only guide you should use. Interest rates change, prices of homes go up (and down), economic conditions vary. Focusing on any one or even all of those issues can only obscure the truth of owning a home: every month you have to write a check to pay the mortgage. It doesn’t really matter who is in the White House, what the economic forecast is, where interest rates are or what the value of your home is: ya still have to write that check!

I was reminded of this one fundamental truth of homebuying during this thread over at the Craigslist Housing Forum.

In the many, many, MANY interviews I have had over the years with homebuyers, truly, the monthly payment is what people care about the most.

I’ve developed a method where, once I calculate the payment on my handy-dandy calculator, I recite the total payment (including Principal, Interest, Taxes, and Insurance, or PITI) out loud, then look up for the reaction on people’s faces.

If I see a look of horror, I’m rather concerned about doing the loan for those folks.

This happened a lot during the “fantasy” years of the Sub-Prime boom. Being old-fashioned, I was still quoting 30year fixed rate loans when the entire planet was originating 2/28, I/O ARM loans. Sure, those loans had initial monthly payments that seemed affordable, but, when all was said and done, well, I don’t think I need to describe the consequences—just turn on your news channel, the results are splashed all over it daily.

Tax time advice for Homeowners

Do something spectacular and unusual this year when you visit your tax professional: tell her you don’t want a refund next year more than $1,000!

Yes, you read correctly, NO REFUND next year more than $1,000.

Wow, this is a radical concept.

Everyone knows that we Americans love our tax refunds. That late winter/early spring windfall of cash helps out with so many different financial goals. Doesn’t it?

I don’t think so.

I think most people get that money and fritter it away. Spending it on a new flat screen television or a spring wardrobe or a weekend away at Mohegan Sun: this isn’t prudent financial planning. And, if you’re a homeowner, you need to plan your finances carefully.

There’s always work to be done on the house. Or maybe there’s the credit card bill from your purchase of new windows last fall to pay off.

I digress. Let’s return to the concept of that “windfall” of a tax refund.

The truth is this is just a repayment of an interest-free loan you made to the United States government, nothing more.

When your employer takes money out of your paycheck, what is really happening is you are making an advance payment to the government of your tax bill. But that tax bill won’t be prepared by your tax professional until next winter!

And, if you are a homeowner, then you will find your tax bill is substantially lower than the one calculated by your employer. The reason is simple: your mortgage interest and property taxes are tax deductible against your income.

That means your “taxable” income is actually lower than your “real” income!

That’s why you get the windfall, the refund. You are getting back your own money that you loaned to the government all year.

Uncle Sam repays it to you with ZERO interest! There’s not even a “Thank You!” note enclosed. Believe me, if you made an interest-free loan to me, I’d definitely say, “Thanks!”

Often that refund is a substantial chunk of change; it’s a lot more than $1,000!

Think about it: if your refund is $6,000 that’s $500 a month you overpaid your income taxes! You can do a lot with that $500, can’t you?

So, do something radical, spectacular and surprising this year: tell your tax professional you don’t want a refund more than $1,000 next year. Your tax professional—admiring your obvious financial smarts—will then calculate how to reduce your withholding on your paycheck so that money you’ve been lending the government goes into your pocket each payday, instead!

Armed with that advice, you then pay a visit to your payroll department, file a new W-4 withholding form and KEEP YOUR MONEY!

I’ll bet you can put it to better use that way in your monthly budget than waiting for that windfall next year.

[tags]Word Press, Technorati, SimpleTags, Tax Time, Tax Refund, Mortgage Interest Deduction, Home Buyer, IRS[/tags]

The Return of PMI: Private Mortgage Insurance

With the mortgage meltdown eradicating piggyback loan programs, and borrowers still needing to finance more than 80% of the purchase price of a home, the need for loans with PMI has become a default issue.

Everything that was “old” is new again, including PMI.

PMI is Private Mortgage Insurance and is required for most mortgage loans when the Buyer’s downpayment is less than 20% of the purchase price.

Back when the now infamous 80/20 or “piggyback” loans were making inroads into the mortgage industry, I was one of the last holdouts at my company (besides my pal and fellow old-timer Barry W.) still originating mortgage loans with PMI. Younger loan officers looked at me as if I were mad for still talking, originating and closing PMI loans. Eventually I made the leap and included the “piggyback” mortgages on the product menu I recommended to clients. Those 80/20 or 80/15 piggybacks I originated all had fixed rates—I just don’t do ARM loans—and, even though the interest rates on the second mortgage was high (usually 9-11%), often the total mortgage payment was cheaper than a mortgage loan with PMI.

The added benefit of mortgage interest tax-deductibility didn’t hurt the situation, either. PMI is not tax deductible.

With the mortgage meltdown mess eradicating most all of those piggyback loan programs, and borrowers still needing to finance more than 80% of the purchase price of a home, the need for loans with PMI has become a default issue.

I’ve noticed also that some Lenders are offering “Affordable” mortgage financing products with reasonably priced PMI payments in order to assist First Time Homebuyers obtain financing during the mortgage meltdown days of 2007. This is a really good thing because too often the PMI premiums—and thus the monthly payment included with a Borrower’s mortgage payment of “PITI”—are so high as to prevent Buyers from moving forward on a home purchase.

Once again I say, “What once was OLD is NEW again!” Welcome back, PMI.

[tags]PMI, PITI, piggyback, mortgage meltdown, homebuyers, Private Mortgage Insurance[/tags]

“Asking Price” Doesn’t Matter to Realistic Buyers

A Buyer who worries about asking price is missing the bigger picture of how to negotiate the purchase of a home.

The methods used to determine asking price on any given property are so wildly varied as to defy clear definition. Especially as emotion plays such a large part in the ultimate decision.

In this market, in my opinion, the Buyer should set their own price.

A Buyer who worries while shopping about asking price and list price is missing the bigger picture of how to negotiate the [tag]purchase of a home[/tag].

The [tag]Realtor[/tag] doesn’t control you—and you should never let them, either!

1. Create your wish list for the home you want.
2. Identify the neighborhood(s) you like.
3. Get out there and shop, shop, shop (that means: do NOT sit at home looking at internet listings; all you’re seeing are ADVERTISEMENTS, not homes).
4. Being out there you gather personal data to compare/contrast against your wish list.
5. Being out there you develop your own personal “gut-feeling” of [tag]market price[/tag].
6. Make offers. That’s how you, the Buyer, determine the market price. (btw: I gave the SAME advice during the boom).

If a Seller is truly interested in selling, you and the Seller will work out your differences on price (in other words: your opening bid is almost NEVER your maximum price, nor is it the Seller’s bottom price) and find that equilibrium wherein both parties are happy and there occurs a “meeting of the minds.”

If a Seller is unrealistic, you will walk away from the [tag]house[/tag] because no amount of patient negotiating is going to convince that Seller of the “true” market price.

This isn’t rocket science: it’s just patience and a realistic appraisal of the market for [tag]home buying[/tag].

[tags]Word Press, Technorati, appraisal, SimpleTags[/tags]