USDA Rural Development Update

Sep 26
Category | Home Buyers

Here we are coming to the end of another month .... where does the time go?  What makes the end of this month special is that come next Wednesday, October 1st, 2014, is that the calculation used for determining Mortgage Insurance on a USDA Rural Development mortgage loan increases from 40 bps to 50 bps.  Don't let this scare you though.  For First Time Homebuyers, I still think that this is an awesome loan and one of the best available.  The only negative is that the Undrwriting turn-times for the state of Oregon are running approximately 30 business days, therefore making a transaction take close to two months to close.  Make sure that your Realtor knows this if making an offer to purchase!  Please contact me with any questions that you might have.

I had an interesting experience yesterday that I thought that I would share.  Let's start at the beginning.  Late last week a young couple who had never bought a home were referred into me by one of my Realtor partners.  Like most first time Homebuyers, they were very excited to get started on this adventure.  They had done quite a bit of exploration online regarding buying a home, and obtaining a mortgage.

We had two phone conversations prior to them coming into my office late yesterday.  In both of the conversations, they had mentioned a couple of auction web sites, but as they were already working with one of my Realtor partners, I didn't give it much thought.  They also had mentioned that there was a home locally that they were in the process of 'falling in love' with.  The only negative that they could see was that it would probably need to be re-roofed and the carpet would need to be replaced.

With that in mind, I gathered Renovation Mortgage information for this couple, to give them something to compare.  Both programs that I presented were Renovation programs, one FHA 203k and the other Fannie Mae HomeStyle.  Once they were seated in front of me, we discussed the merits of both programs, and also the fact that they would need to line up a General Contractor.  Then they mentioned that the home was 'listed' on an Auction Website, that will remain unnamed.  That's when things turned ugly.

I had not heard of this website before.  I asked my clients questions regarding this particular 'Seller', and they did not know the answers.  So we went online together and to this particular 'Seller's' auction website.  After reading some of the disclaimers, it was obvious that the homes that this Seller was representing were distressed.  Aditionally, they required a 30-day Closing and the Buyer to put up a 4 1/2% Buyer's Fee.  This I would assume to cover any Realtor commissions?  Further investigation revealed that this Auction Website (seller) was on it's fourth name change, had many negative comments throughout the web from previous clientele and Realtors (we could not find one positive comment to their benefit), and was owned by one of the worst Sub-Prime Lenders that miracuously survived through the Great Recession.  The couple decided that there were too many red flags.

In summary, find a Local Realtor, and use a Local Lender.  Remember, if it sounds too good to be true, then it probably isn't true.

Looking to get your foot in the door (of your new home)? If you’re a renter who’s tired of paying someone else’s mortgage, now may be the time to pursue the American dream of homeownership. In fact, the days of needing a 20% down payment are long gone. While you can always elect to put down the full 20% or more, there are now many alternatives available. Here’s what you want to know if buying a house is in your future.

In the mortgage industry, 20% down is considered the benchmark down payment for looking strong on paper as a home buyer. While this a general standard for financial strength, it is by no means a requirement, nor is it necessarily expected. However, keep in mind that your purchase offer amount – your buying power — drives negotiation. How strong you are on paper does help, but when you make an offer to buy a home, the seller of the property has no idea of your financial strength other than what your real estate agent tells them and what’s on your pre-approval letter. The price dictates whether you’re in the game for the house, or whether you’ll continue to be on the search.

For an FHA loan, the minimum down payment you would need to buy a home is 3.5% down. Most lenders can lend up to $417,000 with the exception of Alaska, Hawaii and Guam. An FHA loan comes with a monthly mortgage insurance payment, which can make it more expensive than a conventional mortgage.

In some more affluent markets, the higher loan amounts (per county) allow someone with strong income and less cash to still get into the market.

Another popular choice for buyers is using a conventional loan with 5% down. There are loan size amounts up to $417,000 (with the exception of Alaska, Hawaii and Guam) going as high as $417,000 with as little as 5% down. An alternative to the higher-priced FHA loan, the conventional loan allows for getting rid of the PMI after accumulating 20% equity after a minimum of 24 months.

Two options exist for 0% down financing, one being through the U.S. Department of Veterans Affairs. The program allows a veteran to purchase a house for literally no money down. Yep, the purchase price and loan amount are equal.

The caveat? Actually, there are two: The program is for military veterans only, and the home must pass a clear pest report.

An alternative to this program is a loan guaranteed by the U.S. Department of Agriculture, USDA. You need not be a veteran for this particular loan, however in some areas, you may not be eligible to use the program due tighter qualifying income-to-payment ratios and location. The program also only works for homes designated rural by USDA. Additional income limitations also apply. For example: For a family of four, a household income cannot exceed $96,400 per year.

All of these options allow for the use of gift funds. Family members, cousins, relatives – these are all excellent sources to tap for possible down payment or closing costs (usually about 2% of the home price). Even if you already own a home and are looking to upgrade, all of these programs could present a viable option to bridging the gap between buying a home for the right price in the right area of vs. continuing to be on the search.

Excerpt taken from by Scott Sheldon

During the last few weeks we had very little scheduled economic news here in the U.S. to move interest rates. But things certainly pick up this week, especially with the avalanche of monthly housing numbers we have grown to know and love. Today we have yet another housing price index, this time from the NAHB (builders). Tomorrow is the Consumer Price Index, Housing Starts & Building Permits. Wednesday we'll see the release of the Federal Reserve's Open Market Committee minutes from the July meeting. Thursday is Initial Jobless Claims, the Philly Fed, Existing Home Sales, and the Leading Economic Indicators. At the close Friday the 10-yr was at 2.35% (the lowest since June of 2013) and is at 2.37% this morning with agency MBS prices roughly unchanged.

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