Tim Bradford - AMMCorp.net

 

Important Point to remember -

Never assume that conventional mortgages are cheaper than FHA mortgages if you are putting 20% down, just because you have no mortgage insurance.

I just received a referral from Katerina Gasset the other day who wants all buyers to be approved on her bank owned properties by someone that she trusts, even if that borrower is going to use their choice of lender. The borrower must have told me that she wanted the best rate 3 times. This was up most on her mind and I don't think she heard anything else that I stated. Well, I received an e-mail today from Katerina, from the realtor that has the buyers, telling us that they went with her first choice. This is someone that the borrower trusts and who is friends with on a certain level apparently. Her credit scores are above 700, yet her husbands credit scores are around 634 and 637. Here is the sad pathetic part when speaking to the borrower. I asked her if the loan officer had her husband's credit scores and she said no, she only told him hers. OUCH - rut row !!!!  First off, no loan officer shouldn't be quoting interest rates without at least knowing the borrowers credit scores, all borrowers involved.

 

 

FHA loans have been the main source of financing in the last 6 months. What I hate hearing is that they have taken the spot of the subprime loans. This is not true by any part of the imagination. This statement is from those that are inexperienced in both the mortgage and the real estate industries. The realization has been that 30% of the subprime mortgages in the last 5 years previous to the last 2 years should have been FHA mortgages, not subprime. And that is a hard core fact.

 

To compound this, so many said just because you had a conventional loan, you had the better loan. This was not always true when putting 3.5 percent down. In most cases, you were told this, because that particular lender was not FHA approved. Now?  Even with 10% down and credit scores less than 680, FHA loans in many cases, will be the best mortgage for you. But here is the kicker, in this scenario that I am about to share with you, even with 20% down, the FHA loan is cheaper for you, even in the short term. And because of today's rates and market conditions, paying points might be better than ever before.

 

 

So you could argue the fact that this is just my opinion, that FHA mortgages in many cases would be better for you. True, even though I have over 16 years of experience as a loan officer in the mortgage industry. But numbers don't lie. Let me show you.....

The example below is based on a $460,000 purchase price with 20% down. One reason why conventional rates are a little higher and cost more pooints in this scenario as in FHA rates is because Fannie Mae and Freddie Mac have added penalties per se. If you are putting down less than 30% and your credit score is less than 720, certain fee penalties would apply to you, which would increase your rate.  The FICO (credit score) that I am going to use is 637 and I will still show in this example that FHA loans are cheaper, even with 20% down.  

 

***And keep in mind, some lenders have penalties on FHA mortgages with credit scores under 620. And many lenders can't do FHA loans under 620. I can still do them down to 600.***

 

Type of Mortgage	Conventional Loan	FHA Loan
Purchase Price	$460,000	$460,000
Mortgage Amount w/ 20% down	$368,000	$374,440 w/MIP
Interest Rate with points	5.50% & 3.625 points	4.50% & 1.794 points
Principal & Interest Payments	$2,089.46	$1,897.23
Mortgage Insurance	N/A – Zero $	$153.33
Total Mortgage Payment w/ P&I and mortgage insurance	$2,089.46	$2,050.56
Monthly Savings		$38.44

Disclaimer :  These rates are examples, but the spread shown in the example is real. To compare this scenario apples to apples, it couldn't be done because of the large pricing hit on the credit scores for conventional loans. In this scenario, there are no lender fees, just points. The conventional rate and points also includes the penalty for the 637 credit score, which is 3 points.

 

Some of you might be saying that you will be adding $6,440.00 onto your principal balance if you did the FHA mortgage because of the FHA one-time mortgage insurance premium. This is correct and I don't want to confuse you with more numbers and charts. But here is a quick breakdown. Here is a break down of the costs for the both scenarios.

 

Costs of the mortgage	Conventional Loan	FHA Loan
Mortgage Amount w/ 20% down	$368,000	$374,440 w/MIP
Points for the rate & penalty	0.625 + 3.0 = 3.625 points	1.794 points
Cost in dollars for the points	$13,340.00	$6,653.00
Difference in costs	$6,687.00 more than FHA
Upfront MIP added to loan	N/A	$6,440.00
Monthly Savings on Mtg payment		$38.44
New Mtg payment – MIP paid in cash	$2,089.46	$2,017.93
Monthly savings with No MIP financed		$71.53

 

As you can see, there are a few different ways to look at this. To compare apples to apples on the upfront mortgage insurance, let's pay it off in cash, using the same monies that you were using to buy the conventional rate. As you can see you still save $237 out of pocket on the FHA loan and now $71.53 a month, even with mortgage insurance.

My advice?  Don't pay the UPMIP, because you will still have a lower mortgage payment and keep in mind, you also have a tax write off on the higher loan amount. One more important fact that even many loan officers don't know. The monthly mortgage insurance on the FHA loan will fall off in 5 years. When this happens, your savings is now increased to $191.77 a month.

 

Lastly, here is one more comparison to show what happens to your principal on the FHA loan scenario compared to the conventional scenario.

 

Principal Balance	Conventional Loan	FHA Loan
Mortgage Amount w/ 20% down	$368,000	$374,440 w/MIP
Remaining Principal after 3 years	$252,273.59	$255,473.11
Remaining Principal after 5 years	$340,255.24	$341,336.83
Remaining Principal after 7 years	$326,842.79	$325,861.41

As you can see here, it would take about 6 1/2 years to recoup the upfront mortgage insurance if you included it on the new mortgage. But don't forget that you put $6,687.00 in your pocket because the FHA loan was cheaper in points.

 

If you ever have any questions about FHA loans and comparisons, please don't hesitate to call me or e-mail me.  jbelonger@ihmci.com

 

 

 

 

 

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger

BUYING A BANK OWNED HOME

 

Buying a bank owned home is a popular trend, especially here in the Cleveland area. Local home buyers are hearing about the great "deals" people are getting across the country and want to get in on the action. National media have also been feeding this frenzy. While buying a bank owned home may be a great option, there are also pitfalls that buyers may not be aware of. Here are some pros and cons of buying a bank owned home.

 

PROS

*     Buying Below Market Value - This is the most popular reason for wanting to purchase a bank owned property.

*     Less Competition - Especially on a home that needs work. A lot of buyers don't have the necessary funds to both finance AND fix up a property. Buyers with sufficient money are a rare commodity today and may find little competition when bidding on a bank owned home that needs improvements.

*     Opportunity To Buy In A Desirable Area - Bank owned homes give some people a chance to buy into a community that they would otherwise not be able to afford.

*     Sweat Equity - Contractors or buyers who are very "handy" can do much of the needed improvements themselves, thus creating instant equity when improving a bank owned home.

*     An Alternative To Building - Many buyers who don't want the hassle of building a home from scratch find this as a viable alternative, especially in high-end suburbs. Buyers can purchase a bank owned home that has the desired space and floor plan, but may be a little "rough" and make it everything they want.

CONS

*     Bank Owned Homes Usually Need Work - These homes have been neglected for a long time and often need money put into them. If you are looking for a home in "move-in" condition, a bank owned home probably isn't for you.

*     Investment Of Time - In addition to money, a lot of time needs to be put into a bank owned home. In some cases, it is like taking on a second full time job.

*     The Unknown - There is limited information about a bank owned home available to a buyer.

*     Financing Issues - Some lenders won't give a loan on a bank owned home that isn't in decent condition. Therefore, the only way to purchase some of them is cash, which is a big hurdle for many buyers.

*     Competition - There are a lot of buyers who want to buy a bank owned home, especially one that is in great condition. Nice bank owned homes priced well don't last long and often get multiple offers.

 THE REALITY

While buying a bank owned home seems like an easy  thing to do, and a good investment, there are a lot of misconceptions. Many buyers think they will be getting the bargain of a lifetime when buying a bank owned home. However, you can expect to realistically purchase one for about 5-20% below market value. A deal, perhaps, a steal, not usually. The really good ones often sell at or near market value.

There are a lot of risks involved as well. Unless you have experience buying and fixing up homes, most buyers don't know how to properly calculate the amount of money needed to properly improve a home. This often leads to the financial downfall of many, espcially first-time buyers. 

Additionally, many buyers purchase a bank owned home without having their own agent. This comes from the "getting a deal" mentality that many buyers have. They mistakenly think that working directly with the listing agent will help get them an even better deal, which is not true. The listing agent works for the seller, not the buyer. Buying a bank owned home can be a much more complicated transaction than a tradtional purchase and without a buyers agent, a buyer is putting themselves at risk.

A bank owned home can provide a buyer with a fantastic opportunity to get the home of their dreams at a great price, provided they know what they are getting into. If you are seriously considering buying a bank owned home, consider the pros and cons to make sure it is the right thing for you. 

Click below to read more articles about bank owned homes in the Cleveland area:

Bank Owned Homes In Orange School District

Bank Owned Homes In Solon

Bank Owned Homes In Beachwood

************************************************************************************** 

About The Authors:

Dan and Amy Schuman reside in the Eastern suburbs of Cleveland and have experience helping buyers purchase a bank owned property. They are relocation specialists and work extensively with buyers and sellers who are relocating in or out of the area.

The Schuman Team also specializes in luxury homes and are members of the Luxury Home Consultants of Keller Williams Realty Greater Cleveland and of the prestigious Institute for Luxury Home Marketing,the premier independent authority in training and certification for real estate agents working in the luxury home market.

If you are looking to buy or sell a home in Bainbridge,Beachwood, Moreland Hills, Orange, Pepper Pike, Solon or the surrounding Eastern suburbs of Cleveland, please contact the Schuman Team as they would be happy to show you why people love working with them.

To see all homes currently on the market in the Cleveland Ohio area, click here. For a personal consultation or to speak directly to The Schuman Team, call 216-346-3235.

Check out the award-winning website, www.schumanteam.com .

 or CLICK HERE to visit the Schuman Team blog and then save it as one of your favorites.

All content is the property of The Schuman Team and may not be duplicated or used without their written consent. ©2009

 

In todays day and age, all consumers must be aware of all the different scams out there to get them to spend money that the public does not have to. HUD KICKS OFF SIX-CITY FINANCIAL LITERACY CAMPAIGN TO HELP TROUBLED HOMEOWNERS AVOID FORECLOSURE AND RESCUE SCAMS "Keep Your Home. Know Your Loan." campaign promotes free housing counseling

Christopher Shearer

A. Specific Settlement Costs

This part of the Booklet discusses the settlement services which you may be required to get and pay for and which are itemized in Section L of the HUD-1 Settlement Statement. You also will find a sample of the HUD-1 form to help you to understand the settlement transaction.

When shopping for settlement services, you can use this section as a guide, noting on it the possible services required by various lenders and the different fees quoted by service providers. Settlement costs can increase the cost of your loan, so compare carefully.

700. Sales/Broker's Commission: This is the total dollar amount of the real estate broker's sales commission, which is usually paid by the seller. This commission is typically a percentage of the selling price of the home.

L. SETTLEMENT CHARGES
700. TOTAL SALES/BROKER'S COMMISSION based on price $ @ %=	PAID FROM BORROWER'S FUNDS AT SETTLEMENT	PAID FROM SELLER'S FUNDS AT SETTLEMENT
Division of Commission (line 700) as follows:
701. $ to
702. $ to
703. Commission paid at Settlement
704.

800. Items Payable in Connection with Loan: These are the fees that lenders charge to process, approve and make the mortgage loan:

801. Loan Origination: This fee is usually known as a loan origination fee but sometimes is called a "point" or "points." It covers the lender's administrative costs in processing the loan. Often expressed as a percentage of the loan, the fee will vary among lenders. Generally, the buyer pays the fee, unless otherwise negotiated.

802. Loan Discount: Also often called "points" or "discount points," a loan discount is a one-time charge imposed by the lender or broker to lower the rate at which the lender or broker would otherwise offer the loan to you. Each "point" is equal to one percent of the mortgage amount. For example, if a lender charges two points on a $80,000 loan this amounts to a charge of $1,600.

803. Appraisal Fee: This charge pays for an appraisal report made by an appraiser.

804. Credit Report Fee: This fee covers the cost of a credit report, which shows your credit history. The lender uses the information in a credit report to help decide whether or not to approve your loan and how much money to lend you.

805. Lender's Inspection Fee: This charge covers inspections, often of newly constructed housing, made by employees of your lender or by an outside inspector. (Pest or other inspections made by companies other than the lender are discussed in line 1302.)

806. Mortgage Insurance Application Fee: This fee covers the processing of an application for mortgage insurance.

807. Assumption Fee: This is a fee which is charged when a buyer "assumes" or takes over the duty to pay the seller's existing mortgage loan.

808. Mortgage Broker Fee: Fees paid to mortgage brokers would be listed here. A CLO fee would also be listed here.

 

800. ITEMS PAYABLE IN CONNECTION WITH LOAN
801. Loan Origination Fee %
802. Loan Discount %
803. Appraisal Fee to
804. Credit Report to
805. Lender's Inspection Fee
806. Mortgage Insurance Application Fee to
807. Assumption Fee
808. Mortgage Broker Fee
809.
810.
811.

 

900. Items Required by Lender to Be Paid in Advance: You may be required to prepay certain items at the time of settlement, such as accrued interest, mortgage insurance premiums and hazard insurance premiums.

901. Interest: Lenders usually require borrowers to pay the interest that accrues from the date of settlement to the first monthly payment.

902. Mortgage Insurance Premium: The lender may require you to pay your first year's mortgage insurance premium or a lump sum premium that covers the life of the loan, in advance, at the settlement.

903. Hazard Insurance Premium: Hazard insurance protects you and the lender against loss due to fire, windstorm, and natural hazards. Lenders often require the borrower to bring to the settlement a paid-up first year's policy or to pay for the first year's premium at settlement.

904. Flood Insurance: If the lender requires flood insurance, it is usually listed here.

 

900. ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE

901. Interest from to @$ /day
902. Mortgage Insurance Premium for months to
903. Hazard Insurance Premium for years to
904. years to
905.

 

1000 - 1008. Escrow Account Deposits: These lines identify the payment of taxes and/or insurance and other items that must be made at settlement to set up an escrow account. The lender is not allowed to collect more than a certain amount. The individual item deposits may overstate the amount that can be collected. The aggregate adjustment makes the correction in the amount on line 1008. It will be zero or a negative amount.

 

1000. RESERVES DEPOSITED WITH LENDER
1001. Hazard Insurance months @ $ per month
1002. Mortgage insurance months @ $ per month
1003. City property taxes months @ $ per month
1004. County property taxes months @ $ per month
1005. Annual assessments months @ $ per month
1006. months @ $ per month
1007. months @ $ per month
1008. Aggregate Adjustment

 

1100. Title Charges: Title charges may cover a variety of services performed by title companies and others. Your particular settlement may not include all of the items below or may include others not listed.

1101. Settlement or Closing Fee: This fee is paid to the settlement agent or escrow holder. Responsibility for payment of this fee should be negotiated between the seller and the buyer.

1102-1104. Abstract of Title Search, Title Examination, Title Insurance Binder: The charges on these lines cover the costs of the title search and examination.

1105. Document Preparation: This is a separate fee that some lenders or title companies charge to cover their costs of preparation of final legal papers, such as a mortgage, deed of trust, note or deed.

1106. Notary Fee: This fee is charged for the cost of having a person who is licensed as a notary public swear to the fact that the persons named in the documents did, in fact, sign them.

1107. Attorney's Fees: You may be required to pay for legal services provided to the lender, such as an examination of the title binder. Occasionally, the seller will agree in the agreement of sale to pay part of this fee. The cost of your attorney and/or the seller's attorney may also appear here. If an attorney's involvement is required by the lender, the fee will appear on this part of the form, or on lines 1111, 1112 or 1113.

1108. Title Insurance: The total cost of owner's and lender's title insurance is shown here.

1109. Lender's Title Insurance: The cost of the lender's policy is shown here.

1110. Owner's (Buyer's) Title Insurance: The cost of the owner's policy is shown here.

 

1100. TITLE CHARGES
1101. Settlement or closing fee to
1102. Abstract or title search to
1103. Title examination to
1104. Title insurance binder to
1105. Document preparation to
1106. Notary fees to
1107. Attorney's fees to
(includes above items numbers; )
1108. Title Insurance to
(includes above items numbers; )
1109. Lender's coverage $
1110. Owner's coverage $
1111.
1112.
1113.

 

1200. Government Recording and Transfer Charges: These fees may be paid by you or by the seller, depending upon your agreement of sale with the seller. The buyer usually pays the fees for legally recording the new deed and mortgage (line 1201). Transfer taxes, which in some localities are collected whenever property changes hands or a mortgage loan is made, can be quite large and are set by state and/or local governments. City, county and/or state tax stamps may have to be purchased as well (lines 1202 and 1203).

 

1200. GOVERNMENT RECORDING AND TRANSFER CHARGES
1201. Recording fees: Deed $ ; Mortgage $ ; Releases $
1202. City/county tax/stamps: Deed $ ; Mortgage $
1203. State tax/stamps: Deed $ ; Mortgage $
1204.
1205.

 

1300. Additional Settlement Charges:

1301. Survey: The lender may require that a surveyor conduct a property survey. This is a protection to the buyer as well. Usually the buyer pays the surveyor's fee, but sometimes this may be paid by the seller.

1302. Pest and Other Inspections: This fee is to cover inspections for termites or other pest infestation of your home.

1303-1305. Lead-Based Paint Inspections: This fee is to cover inspections or evaluations for lead-based paint hazard risk assessments and may be on any blank line in the 1300 series.

 

1300. ADDITIONAL SETTLEMENT CHARGES
1301. Survey to
1302. Pest inspection to
1303.
1304.
1305.

 

1400. Total Settlement Charges: The sum of all fees in the borrower's column entitled "Paid from Borrower's Funds at Settlement" is placed here. This figure is then transferred to line 103 of Section J, "Settlement charges to borrower" in the Summary of Borrower's Transaction on page 1 of the HUD-1 Settlement Statement and added to the purchase price. The sum of all of the settlement fees paid by the seller are transferred to line 502 of Section K, Summary of Seller's Transaction on page 1 of the HUD-1 Settlement Statement.

 

1400. TOTAL SETTLEMENT CHARGES (enter on lines 103, Section J and 502, Section K)

 

Paid Outside Of Closing ("POC"): Some fees may be listed on the HUD-1 to the left of the borrower's column and marked "P.O.C." Fees such as those for credit reports and appraisals are usually paid by the borrower before closing/settlement. They are additional costs to you. Other fees such as those paid by the lender to a mortgage broker or other settlement service providers may be paid after closing/settlement. These fees are usually included in the interest rate or other settlement charge. They are not an additional cost to you. These types of fees will not be added into the total on Line 1400.

 

Christopher Shearer

 

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As well as the Colorado communities of Aspen  * Vail  *  Glenwood Springs * Boulder * Grand Junction * Steamboat Springs

 

 

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