Buying a Home: Prepare by getting your Finances in Order

For those considering buying a home, the current real estate market presents some unique opportunities. One of the side effects of the economic roller coaster ride of the past few years is that home prices have gone down and more homes have gone on the market.

For buyers, that means more choices and better deals. However, those same tumultuous years can also teach buyers a lesson: Make smart buying decisions and be wise with your finances.

Impulsive buying is never a good idea when it comes to a purchase as significant as a home, but it was something of a trend at the height of the mid-2000s. Now, with banks lending far more cautiously, you need to be absolutely certain that your finances are in order - and healthy - to be able to get the best deal on your purchase.

There are a number of steps you can take to get ready to buy a home, and you might need to work on them simultaneously.

Read further for the steps to take.

More Homebuyer's Expected

Fannie Mae reports that potential home buyers may enter the purchase market sooner rather than later as more Americans expect mortgage rates and home prices to climb, according to results from Fannie Mae's June National Housing Survey, June, 2013

How much will rising mortgage rates cost you?

Mortgage rates are rising. An average 30-year fixed rate carried a 3.35% interest rate nine months ago. Today, the same loan will cost you 4.46%.  What does the rise in rates do to a mortgage payment?

Here is a chart of the average mortgage interest rates going back to 1980 to see how much monthly payments would be on a 30-year fixed-rate $250,000 loan. 

Source: Federal Reserve interest rate average for the year

If you take out a $250,000 mortgage with a 30-year, fixed-rate loan today, monthly mortgage payment will be $1,261, up from $1,145 a year ago, and down from $2,200 in 1990 and $3,489 in 1980.

Thank goodness we're probably not going back to 1981 interest rates anytime soon!  We have great rates today, call me to find out what you qualify for  and what your payments will be on the home you would like to purchase.  :)

Only 5% of homebuyer's expect rates to drop over the next 12 months

Among the questions asked in the May 2013 Fannie Mae Housing Survey was, "Do you expect mortgage rates to go up, go down, or stay the same in the next 12 months?".

Just 5% of those surveyed expect mortgage rates to drop.

This may be another reason why such a large percentage of respondents said "now is a good time to buy a home". When mortgage rates rise, buyers know, purchasing power wanes.
From today's levels, for every 1 percentage point higher which mortgage rates go, a buyer's maximum purchase price declines 11%.. Rising rates, therefore, can mean the difference between buying a home with 4 bedrooms or three; with 3 bathrooms or two; and with a three-car garage or two.

Rising rates can also mean the difference between buying or renting for another 12 months.
Homeownership is attractive to renters because U.S. homes remain affordable and mortgage rates are still quite low.  Plus, with the high-availability of low-downpayment loans including the Fannie Mae Conventional 97 program and various FHA program, choosing the best mortgage program for your needs is easier than ever.

No changes to Conventional Loan Limits in 2013

Call me for me for your conventional mortgage loan needs!

General Loan Limits for 2013
The general loan limits for 2013 remain unchanged from 2012 (e.g., $417,000 for a 1-unit property in the continental U.S.). Maximum Original Principal Balance for 2013

Units	Contiguous States, District of Columbia, and Puerto Rico	Alaska, Guam, Hawaii, and the U.S. Virgin Islands
1	$417,000	$625,500
2	$533,850	$800,775
3	$645,300	$967,950
4	$801,950	$1,202,925

Maximum Loan Limits for High-Cost Areas for Mortgages Acquired in Calendar Year 2013 and Originated after 9/30/2011 or Prior to 7/1/2007*
Loans originated on or after October 1, 2011 use the "permanent" high-cost area loan limits established by FHFA under a formula of 115% of the 2010 median home price, up to a maximum of $625,500 for a 1-unit property in the continental U.S.. The high-cost area loan limits are established for each county (or equivalent) and are published on FannieMae.com. Lenders are responsible for ensuring that the original loan amount of each mortgage loan does not exceed the applicable maximum loan limit for the specific area in which the property is located.

Units	Contiguous States, District of Columbia+	Alaska, Guam, Hawaii, and the U.S. Virgin Islands
1	$625,500	$938,250
2	$800,775	$1,201,150
3	$967,950	$1,451,925
4	$1,202,925	$1,804,375

+Puerto Rico and a number of other states do not have any high-cost areas in 2013.
*These limits were determined under the provisions of the Housing and Economic Recovery Act of 2008.
Note that the loan limits apply based on the original loan amount, rather than the unpaid principal balance (UPB).

FHA Mortgage Insurance Changes: As of June 3, 2013

FHA Mortgage Insurance is changing again and for the 2nd time this year.  FHA has tried to find the magic insurance rate to allow FHA loans to be available, FHA to be solvent (too many losses and not enough insurance will take the FHA option away) and this INCREASE will enable FHA loans to be available into the future. 

Lock into the current FHA mortgage insurance by calling me and I can get an FHA case number for you

I must have your full FHA loan application for a refinance or a purchase-with property identified-before I can get an FHA case number.   

All FHA case numbers obtained after May 31, 2013 will fall under the NEW insurance rates which require monthly mortgage insurance for the life of the loan (MMIP currently drops off after 5 years or 78% of the original value or appraisal, whichever the lower amount) if the Loan to Value (LTV) is above 90%.

For LTV's below 90%, monthly mortgage insurance will drop off after 11 years. 

Here are the future Monthly Mortgage Insurance rates after June 4, 2013:

• 15-year loan terms with loan-to-value over 90% : 0.70 percent annual MIP
• 15-year loan terms with loan-to-value under 90% : 0.45 percent annual MIP
• 30-year loan terms with loan-to-value over 95% : 1.35 percent annual MIP
• 30-year loan terms with loan-to-value under 95% : 1.30 percent annual MIP

Beginning in June, though, the FHA moves away from an LTV-based system. The new cancellation policy will be as follows :

• Loans beginning at 90% LTV or less will pay annual MIP for 11 years.
• Loans beginning at 90% LTV or more will pay annual MIP for the complete loan term.

This means that home buyers using the Federal Housing Administration's 3.5 percent downpayment program will pay annual mortgage insurance for the loan's full 30 years, regardless of whether the home appreciates to the point of having 22 percent equity or more.

With the new FHA rules, Monthyly Mortgage Insurance Premium is forever. 

Home Ownership Increases Dramatically: 20 year snapshot

HUD tells us that at the end of 1991, there were roughly 60 million families that owned a home and 33 million families that rented a home or an apartment. 

At the end of 2011 (i.e., 20 years later and the most recent year for which data is available), there were 76 million families that owned a home (+27%) and 39 million families that rented (+16%). 

HUD also tells us that 3 out of every 4 American households added in the last 2 decades were homeowners as opposed to renters. 

Western Region Dominates in Year over Year Home Value Appreciation

Q1 Home Prices Maintain Strength Over Winter for First Time in Seven Years

Clear Capital has released its Home Data Index (HDI) Market Report with data through March 2013.

"Home prices ended the first quarter of 2013 in a similar fashion to how they started the year, stable and in positive territory," said Dr. Alex Villacorta, director of research and analytics at Clear Capital.

"It has been seven years since home price growth continued throughout winter. This is very strong evidence of the start to a new leg of the recovery, one that should give further confidence to consumers and lenders alike that the recovery is real."

"As buyers become more confident the recovery is sustainable, this sentiment should grow to create a positive feedback loop."

Continue for report highlights and National and Regional map 

Strategy: Get a LOW rate FHA loan so you can let someone assume it AFTER rates go up!

Mark and Sharon Fowler of Charlotte, N.C. are simultaneously planning a home purchase and resale strategy.
Mark Fowler, chief revenue officer and vice president of production for Residential Finance Corp. in Charlotte, says he and his wife will use FHA financing to purchase their home even though they are making a down payment of more than 20 percent and could easily qualify for conventional financing.

Why? The Fowlers are using the "assumable" status of FHA mortgages as a future marketing tool to lure potential homebuyers when they decide to sell sometime down the line.

4 Real Estate Moves with Surprise Tax Implications

By Tara-Nicholle Nelson | Broker in San Francisco, CA

It’s no surprise that owning a home automatically opts you into a new realm of tax advantages. In fact, in a recent survey of people who bought homes in 2012, 79 percent said the mortgage interest and property tax deductions were "extremely important" factors to their decision to become homeowners in the first place.

But these two deductions are just the tip of the iceberg of all the real estate-related tax guidelines, advantages and disadvantages.  Because others get less press, it can be relatively easy for an individual American taxpayer to unwittingly trigger tax liabilities they might have been able to minimize or plan for, or to unwittingly trigger tax perks and fail to claim them.

This is why its essential to touch base with your tax pro before any and every real estate move you make, no matter how minor you think it might be. Sometimes planning and timing makes a major difference to the financial impact of a real estate-related tax; other times, just knowing the size and scope of the tax implications will impact the real estate decision you make.

Here is a short list of real estate moves that trigger surprising tax issues, pro and con:

Home Buyer Education: Online

As we enter into the busier spring time home buying season, I begin to get calls from clients and Realtors who ask about Home Buyer Education.  Community, County and State Grant programs vary in amount of money offered, but many require home buyer education BEFORE the Grant can be offered to the home buyer.