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The rate of home ownership in America…..have we hit the bottom??…..house logo with ascending arrow

It has been falling for nearly a decade and in the fourth quarter of 2014, it hit the lowest level in over two decades at 63.9 percent, according to the National Association of Realtors.

The peak for the home ownership rate was just under 70% during the real

estate boom.

Why is it going up from here?

1. For one, it is getting easier to own a home because credit standards are loosening. Lower down payments are just ONE of the newly relaxed guidelines.

2. Secondly, the cost of renting keeps going up and it just makes more economic sense to own. When renting is more expensive than owning, before the benefits of tax deductions and the forced savings of principal reduction are taken into account, then the economic message can’t be ignored.

The most important reason?

The time is right.millennialsGroup

3. More jobs are being created and that means the rate of household formation is increasing.

A report recently issued by the Lusk Center For Real Estate at the University of Southern California indicates that we are now at pre-recessions levels of household formulations.

That means that the Millennials are moving out and they will need places to live.  Fewer and fewer are failing to launch!

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uncle same piggy bank

On December 19, 2014, legislation was passed once again allowing for the tax deductibility of mortgage insurance (MI) premiums for qualified borrowers.

The deductibility is effective for purchase and refinance transactions closed after December 31, 2013. MI premiums paid or accrued after December 31, 2013 and through December 31, 2014 may qualify for tax deductibility on borrowers’ subsequent federal tax returns* as follows:

  • Borrowers with adjusted gross incomes below $100,000 may deduct 100% of their MI premiums.

 

   • For borrowers with adjusted gross incomes from $100,000.01 to $110,000, deductions are phased out at    10% increments for each additional $1,000 of adjusted gross household income.

Newspaper  good newsIn the first Mortgagee Letter of the year FHA makes a HUGE change by reducing its annual mortgage insurance by 50 basis points across the board.  The new rate will be 85 basis points (for loans with less than 5% down payment).

Example – $200,000 mortgage with 3.5% down payment

Previous FHA monthly mortgage insurance at 135 basis points = $225 p/mo

New FHA monthly mortgage insurance at 85 basis points = $142 p/mo

See all the details here in Mortgagee Letter 2015-01

FHA cuts MI

fha loan limitsGreat news friends – homebuyers in the DFW metro (and surrounding areas) will see increased purchasing power thanks to FHA’s decision to increase loan limits beginning January 2015. Currently the max loan amount for DFW area is $287,500 which means buyers may buy a $297,900 home by putting the very minimum down. However, as of January 2015 the max loan amount increases to $310,500!  This means buyers can buy a $321,750 home with the minimum 3% down payment – an increase of $23,850 in purchasing power!! This is GREAT news!

To find out the max loan amount in your specific county follow this link FHA Max Loan Amount Search!

I’ve had several FHA questions lately so I thought I’d shoot over some tips and rules of thumb for you to use as a reference guide. With FHA’s max loan amount increasing and conventional loan credit guidelines still a little tight FHA is becoming more and more popular.

31/43 qualifying ratios – this means that your client’s total monthly payments (those that report to the credit bureaus) + their house payment (PITI) should not exceed 43% of their GROSS monthly income.  The first number (31) represents the percentage of their income that the house payment (PITI) alone should not exceed.  These guidelines can sometimes be exceeded with an automated-underwriting decision (computer generated approval): Example, the Holmes’s earn $5000 p/mo (total farce) before any taxes are withheld.  In this case the Holmes’s should keep their total house payment close to $1550 and their total monthly payments (credit cards, auto & boat loans, student loans, etc.) + the total house payment close to $2150.  Again, with automated underwriting lenders can typically get outside these ratios….but these are good rules of thumb.

$310,500 – this is the max loan amount in the DFW area.  Can the sales price be higher than this loan amount?

Yes, absolutely!  As long as your client has money to put towards a down payment so that the loan amount is not exceeding the max in your county, the sales price can exceed the max loan amount.

Assuming they are putting the very minimum down of 3.5% they’d be able to purchase a home with a sales price of $321,750 with an FHA Loan.

Example – purchase price = $321,750….3.5% down payment = $11,261…..loan amount = $310,488 ($22 under the max loan amount J)

PLUS, the seller is allowed to pay their closing costs!

Go HERE to search your specific county FHA Max Loan Amount Search!

giftWhat is the down payment requirement? – FHA requires a minimum 3.5% cash investment.  Can this be a gift?

Yes! The entire 3.5% can be a gift!

What are the non-allowables? – What dollar amount should you put in the contract for FHA non-allowables?  NONE, ZERO!  Those were the old days!  The only non-allowable is the tax service fee which is typically less than $80.  This can easily be absorbed by a lender.

Is there a minimum credit score? – Most lenders have gone to a 640 credit score requirement.  Although FHA does not have a published minimum credit score lenders have noticed a pattern of poor performance with credit scores lower than 580.  We will allow for as low as a 600 credit score on our in-house product.

clock moneyWhat are turn times?  How quickly can we close? – I would NOT write in a contract close date less than 30 days out.  FURTHERMORE, I would make sure there are plenty of days from the end of the option period to the closing date.  Most lenders will NOT order an appraisal until the option period is over and the buyers are still moving forward.  It does not do any good to have a 30 day close, with a 15 day option period.  You will probably need 15 business days from option period ending to the close date to be on the safe side.  Again, this is a general rule of thumb….for stress free home purchases, that is!

Can my client use a co-signer? – Yes, Absolutely!  Keep in mind that a co-signer/co-borrower will be treated just like the actual borrower and will need to provide all their income & asset documents.  The lender will configure a joint debt-to-income ratio based on a combination of ALL income and ALL debt.  Generally a co-signer needs to have great credit, good income, and minimal debt.

Can my client purchase without their spouse on the loan due to credit? – Yes, Absolutely!  However, FHA requires that lenders consider the non-purchasing spouse’s individual debt.  For example, if your client’s spouse has an auto loan and a few credit cards in his/her name alone, then these monthly payments will be factored into your client’s debt-ratio. Lenders MUST pull a credit history on non-purchasing spouses.

Is FHA only for first time homebuyers? – NO!  This is a common misconception.  You can use an FHA loan on your 2nd, 3rd, 4th, 5th, or 20th home.  Under most circumstances you can only have 1 (one) FHA loan at a time.

Can I refinance a conventional loan to an FHA loan? – Yes, Absolutely!  Since FHA is more forgiving (in my opinion) with its underwriting guidelines we have successfully moved families out of a high interest rate and/or adjustable rate (ARM) loan and into a low fixed rate FHA loan.

USDAWith all the noise the doom and gloom media is making about tightening credit restrictions and rising interest rates, many homebuyers have been led to think low down payment loans are a thing of the past.  Make no mistake, there are many programs still available.  One often-overlooked loan program belongs to the U.S. Department of Agriculture (USDA).  With no downpayment requirement, the USDA’s Section 502 guaranteed Rural Development housing loan has similar credit guidelines and debt-to-income ratios as FHA loans.

 

The Bullet Points:

  • USDA loans are strictly for home purchases OR refinances of current USDA loans
  • There is NO downpayment requirement
  • There is NO monthly mortgage insurance
  • Targeted to communities that generally have fewer than 20,000 residents and are located within an eligible geographic area
  • Although the program was established to help low and moderate-income buyers it’s not designed solely for them
  • Buyer’s household income may exceed the area’s median income (can reach 115% of median income)
  • Search your county’s median income here.  For example, according to HUD the median household income for Tarrant County TX is $65,800 and therefore USDA would allow for household income of up to $75,670 (115% of $65,800)
  • Important! – USDA considers income from ALL adults that reside in the home (whether they’re on the loan or not)  Why is this important? In some cases the combined income may exceed 115% of the area’s median income, therefore disqualifying them from  USDA financing
  • Designated areas of eligibility were updated this January (2014) – you can go here Search an Address to find out if the home you’re looking to purchase is eligible
  • There are certain property eligibility requirements such as the house being ‘modest in size, design & cost’ AND the home must meet the voluntary national model building code adopted by Texas (or the state the home is located in)

This is a great product to know about and might just fit perfectly with the right homebuyer.  My team and I are more than happy to answer questions you have related to the USDA Zero Downpayment Home Loan.  Email me to get started with this program today Cole@ColeHolmes.com

2014 RE marketFriends, I’m asked all the time what I think 2014 will look like as it relates to real estate.  Thanks to my friend Steve Harney and his whole team at Keeping Current Matters, I’ve been able to answer that question.  Here’s some of his hard labor research garnished with a little bit of mine.  Enjoy!

  1. FHA –  loan amounts have been increased in the DFW metro area.  I mentioned this last week and on my blog FHA Loan Limits UP, but am compelled to send a gentle reminder.  The new max loan amount is $287,500……meaning your clients can look for homes up to $298,000.  AND the minimum down payment for FHA is still only 3.5% and can be a gift from family or friends.

 

  1. Millennial Boomers! – my friend, THIS will be a HUGE piece of the 2014 market.  Think about it….all those 20 & 30 somethings that graduated over the last several years haven’t been able to land a good job, thus forcing them to move back in with mom and dad.  Well, now that we’re beginning to see 150k – 200k new jobs added each month these millennials will finally be moving out of mom and dad’s house and either renting OR, better yet, BUYING their own home. 

 

  1. Rates – The Feds have already began to taper their bond (mortgage bonds) purchasing thus causing rates to rise.  Most Fed presidents across the US expect by the end of 2014 there will be NO more bond purchases.  Period.  This will force rates higher, no way around it.

 

  1. Prices – the last 4 quarters (2012 Q4 – 2013 Q3) show year-over-year 5% or greater price appreciation for the Texas region – according to the FHFA.  In another study done by Fitch Ratings Texas is one of only 9 states to SUSTAIN this current level of home prices going forward!

 

  1. Educate your clients – BE that agent that educates those millennials as to WHY it might be best to buy now vs later.  As prices rise AND rates rise that same $250,000 house is likely to cost them $150 – $250 more per month!

 

  1. Market Normalization – in Texas we’ve been running WAY short on inventory, especially in the first half of 2013.  We are just now seeing inventory get back to ~5-6 months.  Friends, this is a GOOD thing!  Why?  As these millennials and the rest of the unemployed’s begin to enter the labor force they’re going to be in the market for a home.  During the first half of 2013 this wouldn’t have necessarily been possible due the shortage of inventory.  BUT NOW…….. strap on your seatbelts!

 

  1. Housing Projections – according to the Urban Land Institute there are currently 121M households in the US.  Over the next three years we’ll experience a rocketing 3.7% growth!  That’s an additional 4.48M households being formed!

If you’d like any additional information on the statistical data referenced above please reach out to me – I’m happy to share my research, my data, and my sources!

Equipping you,

-Cole

VA home loanMany families have fallen victim to the economic crisis over the last few years.  Additionally, many families have fallen victim to ‘life events’ – such as divorce, job loss, a disability, and the list goes on.  Unfortunately life does not exempt military families from such events.  As such, one of the results of ‘life events’ is foreclosure, which is a tough pill for families to swallow.  However, the sky hasn’t fallen!  Defaulting on a home loan, even a VA-insured one, doesn’t mean qualifying for a VA loan is out of the question.

The truth is another VA loan, even if you’ve defaulted on one previously, is a very real possibility.  Regardless of whether you’ve experienced a foreclosure, a short sale, or a deed-in-lieu of foreclosure, you may very well still qualify for a VA loan.

The real question is – how much VA loan entitlement do you have remaining.  You might have some of your entitlement tied up in the previously foreclosed home.

VA Loan Entitlement

Veterans who are eligible for a VA loan have what is called ‘entitlement’.  Entitlement is the financial promise from the VA that they’ll repay part of your loan in the event you default.  The VA will repay up to $104,250, in most areas of the United States.  Being that the VA promises to pay up to 25% of the loan amount most veterans can borrow up to $417,000 ($104,250 X 4) without a down payment.

When you buy a home you’ll use some OR all of that entitlement, depending on the loan amount.  If you lose your home to foreclosure then the entitlement remains with that property until the loan is repaid in full.  Oftentimes, in a foreclosure, the entire amount of the loan is not paid in full therefore leaving a balance, thus a portion of your entitlement may be tied up in that foreclosed property.

Purchasing a Home After Foreclosure

Unless you defaulted on a really expensive home with a really big loan, you may have enough VA entitlement left over to qualify for another VA loan.  The first step is to check your certificate of eligibility to verify how much entitlement you have left.  Additionally, you’ll need to meet the standard credit, income and other lender required elements to qualify for a home loan.

How to Determine How Much Entitle You Have Left

Let’s assume you lost $50,000 in entitlement as a result of a previous foreclosure.  Your lender will then determine how much entitlement you have left.  Remember the VA will repay up to $104,250.  Therefore, they’ll subtract the $50,000 you lost from the $104,250 max leaving a balance of $54,250.  Keep in mind that the VA will typically pledge to pay 25% of the loan amount.  Thus, $54,250 X 4 = $217,000.  In this example you’d be able to borrow $217,000 without putting money down.

One little thing to keep in mind here – there’s a minimum loan amount of $144,000 (also referred to as second-tier entitlement).  Therefore, if you don’t have enough entitlement left to get you up to $144,000 then the VA loan program may not be a fit for you.

This can be a little confusing and, keep in mind, there are other aspects to consider such as lender requirements to qualify (not just entitlement).  Please contact me with all your questions @ cole@coleholmes.com  – I’m happy to help!