Buyer Information

Do I Really Need A 20% Down Payment?

September 28, 2015 by admin

Conventional wisdom states that you need a 20% down payment to purchase a home right? Financial gurus and many home buying and financial experts will tell you that 20% is the standard when it comes to the amount to put down on a home right? But is a 20% down payment necessary when buying a home?

In short no. In fact a recent study by Realty Trac indicated that down payment amounts are trending downward. Although saving enough money for a down payment is not an easy goal ownership a 20% down payment is not a requirement, and there are alternatives.

FHA Financing:

For those a bit short on down payment money a FHA (Federal Housing Administration) loan, with down payment requirements as low as 3.5%, has become the financing vehicle of choice for many. An FHA loan is a mortgage insured by the Federal Housing Administration, a government agency within the US Department of Housing and Urban Development. Borrowers with FHA loans also benefit from less stringent credit and underwriting standards than with a conventional loan. Because the FHA is not a lender, but rather an insurer, borrowers need to get their loan through an FHA approved lender.

A Mortgage Insurance Premium (MIP) is required on FHA loans and comes in two parts. The upfront premium is 1.75% of the loan amount for example $1,750 for a $100,000 loan. This upfront premium is paid when the borrower gets the loan. It can be financed as part of the loan amount.

The second mortgage insurance premium is referred to as the annual premium, although it is paid on a monthly basis.

– 30-year loan, down payment (or equity) of less than 5 percent: 0.85%

– 30-year loan, down payment (or equity) of 5 percent or more: 0.8%

VA Financing

If you are a veteran you may qualify for a VA loan with no payment. Via the Department of Veterans Affairs, veterans of the U.S. Armed Services can access loan programs not available to the typical consumer. Furthermore a VA loan requires no mortgage insurance ever, regardless of your down payment. Whether you finance 100% of your home or make a 0% down payment, the VA will never charge to insure your loan.

USDA Rural Housing Financing:

Another low down payment option for today’s home buyers is the USDA Rural Housing Loan, also known as the Section 502 loan.

The USDA loan is a bit of a misnomer. It is not just available in rural areas it is available in some suburban neighborhoods as well.

Like the VA loan, USDA mortgages do not require a down payment. Home buyers can finance up to 100% of a home’s purchase price and, in some instances.

The USDA loan program is backed by the U.S. Department of Agriculture and the program is meant to help households of modest means. As such, the program enforces maximum income limits for its borrowers based on the typical income for the area.

Conventional Financing:

Conventional loans are also available with as little as 5% down but carry higher credit score requirements and stricter underwriting standards. Conventional loans with less than 20% also require mortgage insurance known as private mortgage insurance (PMI).

In both cases mortgage insurance protects the lender in case you can’t make your payments and the house is foreclosed on.

Conventional PMI does go away eventually when your loan balance is 80% or less of the home’s value. If you’re in an area where homes are rising in value, this could happen sooner than you think.

When to make a 20% down payment or more:

– When you’re looking to keep your monthly payment as low as possible and have cash to spare

– When you just can not stomach paying monthly PMI

– When your goal is to buy a forever home and own it free and clear

– When you want to buy your house and pay it off as quickly as possible

When to make a lower down payment:

– When you don’t have the funds for a higher down payment and can not earn or borrow them quickly enough

– When the rate on your FHA or Fannie or Freddie loan is comparable to that you’d get with a higher down payment

– When you need to escape a high rent situation and the monthly payment on a house is lower than what you’re currently paying

– When you’re confident your home will appreciate quickly

– When your investments can’t be touched without a penalty or are returning better than the interest rate you get on your home

– When your financial plans call for a substantial emergency fund instead of tying up most of your money in your home

Wallingford PA Real Estate – Wallingford, PA 19086

The Importance Of Establishing Credit

September 14, 2015 by admin

Wallingford PA Real Estate - Wallingford PA - Credit Cards

Establishing A Credit History Is Key When Applying For A Mortgage

It takes credit to get credit. Lenders prefer borrowers with low balances, a long history of on-time payments and a mix of credit utilization – for example, a car loan, student loans, and a couple of revolving accounts such as credit cards.

Perhaps you are a young professional with a high income and you are ready to buy a house, or you are a recent college graduate and have eschewed credit cards or taking out loans, so you have no credit history. Or perhaps you are recently divorced and your credit history was all under your ex-spouse’s name.

It is possible to use what is known as alternative credit from other financial records, such as rent checks, insurance premiums and utility bills. This process is time-consuming, taking as much as three times longer as a normal file, and in the end you will end up paying a higher interest rate than a person with an established credit history.

You will definitely have an easier time qualifying for a loan if you take the time to establish a credit history. You can begin by opening at least two traditional credit lines.

A credit history and credit score known as a FICO score, can be established in as little as six months if you open accounts with a credit card provider that reports to the three main credit reporting bureaus, Equifax, TransUnion, and Experian. If the major credit card companies will not approve your application, apply for a secured card. With a secured card, you give the card company a deposit, usually the same amount as the card’s limit, and use it just like a typical credit card. You can choose to pay the card off monthly or carry a balance and make payments. Just make sure you make your payments on time and keep the balance to less than 25% of the card’s limit. A good source for obtaining a secured credit card is your bank or credit union.

Your three-digit credit FICO score is a key number. Lenders rely on FICO scores to determine how likely borrowers are to make their mortgage payments on time. A high credit score, a FICO score of 740 or higher to be an excellent one, means that borrowers have a history of paying their bills on time. A low score and the assumption is they do not.

The mortgage-approval process is driven by credit and lenders want to see that you have the ability and the willingness to pay back your mortgage loan.

Wallingford PA Real Estate – Wallingford, PA 19086

Why Not All Contracts Close

July 28, 2015 by admin

Realtors were asked the question – how many pending sales actually go to closing? The answer is “almost all” with only 7% to 8% of contracts terminating.

An increasing problem is contracts that where closing is delayed. Mortgage processing is the primary cause for delays. There is no such thing as a guaranteed settlement date, and it is wise to make plans in case such a delay occurs.

– 63% of contracts are reported as settling on time
– 29% of contracts are delayed, but eventually go to settlement
– Seven to eight percent of contracts do not close—i.e., they are terminated. Generally the potential buyer moves on to another purchasing opportunity

The top 3 reasons why a contract does not close are – financing, issues, appraisal issues, and home inspection issues.

Wallingford PA Real Estate – Wallingford, PA 19086

Condominium Financing Can Be Challenging

June 13, 2015 by admin

Crum Creek Valley Condos

Condominium financing poses some unique challenges including stricter lender requirements and higher costs than typical residential purchases.

Both the buyer and the condominium must qualify in the eyes of the lender to obtain a mortgage approval for a condo purchase.

A lender is looking for a condominium that has healthy finances, high owner occupancy rates, and a low percentage of association fee delinquency rates.

Lenders follow guidelines from the Federal Housing Administration, Fannie Mae and Freddie Mac for condo mortgages.

Some of Fannie Mae’s requirements for condominium financing are:

– More than half of the condo units must be owner-occupied.

– No owner may own more than 10% of the units.

– No more than 15% of owners can be delinquent on condo dues.

– All amenities must be completed if the development is more than 12 months old.

– Buyers who make a down payment of less than 25% will generally pay an additional 0.75% of the loan amount at the closing or a higher interest rate of about 0.25%.

Lenders will also take a close look at any pending litigation involving the condo association that might threaten it’s financial well being.

It is difficult for borrowers with a small amount of money available for a down payment to obtain financing since the majority of condos in our are not approved by the Federal Housing Administration (FHA) and thus not eligible for low down payment loans. Check for a condo’s FHA approval status.

Condos that are not approved for FHA or Fannie Mae financing are known as “nonwarrantable” and offer few options for buyers or refinancers.

Even if the condo meets the Fannie Mae guidelines, buyers may find that they must make a down payment of 20% or more because mortgage insurance companies are less willing to provide mortgage insurance on condo loans, since they are considered riskier.

Wallingford PA Real Estate – Wallingford, PA 19086

10 Commandments For A Mortgage Applicant

April 6, 2015 by admin

Congratulations! You have found your dream home, and have made an application for a mortgage. Now is the time to become very predictable and frugal.

Remember, a mortgage underwriter will not look kindly upon your sudden change in spending habits and patterns. You need to resist the temptation to furnish your entire house on your credit card during a visit to the local Raymour & Flanigan.

A new car would look great in your new driveway, but just hold off on that thought.

Now is the the time to be very conservative with your finances. An influx of new debt, or a big change in your financial picture, and you could jeopardize your chances of qualifying for a mortgage.

In a humorous vein, make sure to follow the commandments below – remember you have not actually bought a house until after settlement!

10 Commandments For A Mortgage Applicant

Thou shalt not change jobs or become self employed

Thou shall not buy a car, truck or van unless you plan to live in it

Thou shall not use your credit cards or let your payments fall behind

Thou shall not spend the money you have saved for your down payment

Thou shall not buy furniture before you buy your house

Thou shall not originate any new inquiries on your credit report

Thou shall not make any large deposits into your bank account

Thou shall not change bank accounts

Thou shall not co-sign for anyone

Thou shall not purchase ANYTHING until after the closing

Wallingford Real Estate – Wallingford, PA 19086

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10 Commandments For A Mortgage Applicant

S. Clark Kendus