Archive for the ‘First-time Homebuyer’ Category

In 2000, before the housing market took off like a rocket here in Florida, my husband and I bought our first house together. It happened to be a foreclosed home that had been sitting empty for months. The price was a bargain — or so we thought!

My hubby happens to be pretty handy with a hammer and paintbrush but it still took him about six weeks of full-time repairs to get the house to the condition where we were ready to move in. (The glossy black wet bar and spiral staircase with orange carpet in the living room were just a few things that had to go!)

That was just the beginning. Since moving in we’ve replaced just about everything in the home including the central heating and a/c unit, roof, pool pump and more. And we’re still not completely finished.

I’m describing this because today HUD announced it is going to help “bring stability to home values and accelerate the sale of vacant properties” by waiving the normal 90-day waiting period required for FHA financing on vacant foreclosed properties.

“A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community’s recovery,” said Brian D. Montgomery, Assistant Secretary of Housing-Federal Housing Commissioner. “The action we take today will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country.”

Here’s why I don’t buy this spin:

1. These vacant foreclosed properties must be purchased by owner-occupants who can qualify for FHA financing. But since many current homeowners cannot sell the homes they live in (which is one reason why so many have been foreclosed upon), the prospective borrowers by and large will have to be first-time homeowners. How many first-time homeowners who couldn’t buy over the past five years are now in a position to buy a foreclosed home with all the headaches of deferred maintenance and unforeseen problems? Experienced investors are usually in a much better position to deal with the reality of foreclosure sales, and this proposal isn’t aimed at them.

2. How does selling a home at a bargain basement foreclosure price help stabilize prices? Wouldn’t preventing more foreclosures do a better job at that? There are still plenty of would-be buyers waiting to see “how low they will go” before they will buy.

Sure, this may be a great time for some first-time homeowners to find affordable homes, but I hope HUD doesn’t believe its spin here. And I hope this isn’t touted as another way the government is “helping homeowners in this time of housing crisis.”

But I didn’t use FHA financing to buy my foreclosed home, so what do I know?

Have you shopped online for a home? If so, join the club. Some four out of five consumers are using websites to search for real estate these days.

Now that the barriers to MLS access (Multiple Listing Service) for online real estate firms may be ending, it’s going to be a great time for major innovations in real estate websites.

Bankrate recently provided a good round up of the best online real estate shopping sites which includes some of our favorites. There are some great places to find a home, or list yours.

(Of course, if you want a mortgage for a home you find online, we have the solution for you!)

“Dani” asks:

My score is right around 620 and I’m looking to get my first home. My question is, should I wait until I improve my score to buy and risk rates going up, or buy a home while rates are lower now? Together my husband and I make about $56,000 a year and want to buy between $120,000 and $130,000. But we want a 30 yr fixed rate and don’t have a lot for a down payment. We’re also wondering if that is possible to get one loan with private insurance instead an 80/20 loan with our credit score?

1. You indicate your credit score is around 620. I want to make sure you have checked your three bureau credit scores through MyFICO.com. The middle of those three scores is the one most likely to be used to qualify you for a rate and program. If you are using credit scores from another source, they are not the same scores that mortgage lenders use and will not be as useful. And since scores can vary widely between the three credit agencies, you’ll need all three to make sure you have the correct number. Make sure your husband has checked his too. Typically the lender will use the score of the person with the higher income, which may be you or your husband. (Our system will search mortgage programs using all three scores, and take into account each lender’s criteria for evaluating those scores.)

2. The price range in which you wish to buy sounds reasonable for your income, but the fact that you have little saved and lower scores does worry me. If you get too strapped with the purchase, you’ll have nothing to fall back on when the normal expenses of homeownership crop up. You may want to look for a real bargain (depending on prices in your area), even if it’s not your dream home, to keep your expenses low. Don’t worry so much about where rates are headed as whether you are ready to buy a home or not. If you feel pressured or rushed, you are more likely to make a poor decision.

3. You may well qualify for a low-downpayment loan with Private Mortgage Insurance (PMI) but don’t rule out a piggyback loan (80% first, 10/15 or 20% second). Compare both. The only way to know for sure what your options are is to find out what loans are available to you. In addition to using our mortgage search engine to compare mortgage loans at LenderRateMatch, I would also recommend you talk with a lender who offers FHA loans. These government insured loans are offered by private lenders, and can be more lenient on credit factors as well as offering a low downpayment. They had fallen in popularity in the past few years, but there is a resurgence in them now that other options have dried up.

We wish you the best with your first home purchase!

Q: I am interested in purchasing a FSBO (For Sale By Owner) home in my area. What steps must I absolutely not neglect in securing the best possible mortgage?

A: What a great question! The smartest homebuyers always think about the financing before they start home shopping. After all, while buying a home is expensive, by the time you pay off the home loan you may have paid twice that!

We have a number of articles on our site that should be helpful to you as you prepare to get a mortgage, but here are the most essential tips I can offer:

1. Get your three-bureau FICO credit scores from MyFICO.com. Lenders are becoming much stricter in their credit score requirements, and as a result, you want to make sure yours is as strong as possible. If you find any mistakes or incomplete information, give yourself plenty of time to straighten it out.

2. When you compare mortgage rates and fees, make sure you are comparing apples to apples. You always want to ask a lender to quote you the “par rate.” This is similar to the dealer invoice pricing, and allows you to accurately compare a rate against another. (Our mortgage rate search engine automatically does this for you so you.)

3. Get pre-approved from a lender in writing. This will give you negotiating leverage with the home seller, as they know you are good to go if all other details of the purchase work out.

And although these aren’t home mortgage tips, I’d also recommend you get a real estate attorney to write up or review your purchase contract, and that you get an independent home inspection from an ASHI certified inspector.

Good luck – I hope you find your dream home!

Nearly a quarter of a million more families could be eligible this year to purchase or refinance their homes using FHA-insured mortgages, due to a temporary lifting of loan limits. The Economic Stimulus Act of 2008 will allow HUD’s Federal Housing Administration (FHA) to temporarily increase its loan limits and insure larger mortgages at a more affordable price in high cost areas of the country.

Beginning today, HUD will offer temporary FHA loan limits that will range from $271,050 to $729,750.The maximum amount of $729,750 will only be applicable to extremely high-cost metropolitan areas such as: New York, Los Angeles, San Francisco and Washington, D.C.

Will an FHA loan help you?

FHA loans aren’t government loans. Private lenders make these loans, but they are insured by the federal government. They feature low down payment requirements, but they will not work for you if you cannot document an adequate stable income or if you owe more than your home is worth.

Spouses with very different credit scores seems to be a popular topic for our Ask the Expert column. Here’s what “Marissa” writes:

I recently got married last year, and my husband and I are hoping to buy our first home this year. (We are currently renting.)

How will my past credit history effect my husband and I in getting a mortgage loan, and what are some ways I can improve my credit to help with this process?

First, Marissa, as you may have discovered you and your hubbie have different credit scores. Your credit reports are completely separate, except for any joint accounts which should appear on both your credit reports. It’s perfectly OK to keep your credit separate, especially while you work on rebuilding yours.

As far as the mortgage goes, if your husband is the primary wage earner, or can qualify for a loan based on his income and credit qualifications alone, he can buy the house and simply add you to the title. (In fact, in most cases, the house will be titled jointly anyway).

If you are the primary income earner, then your challenge is greater because the lender will want to qualify you based on your credit scores. Talk to your loan officer once you use FreeRateSearch to search, as you may find a program that fits your situation sooner than you realize.

You also said you want to clean up your credit. It’s great that you have settled everything, and it doesn’t sound like you have any outstanding issues. However, as you have learned, paying off collection accounts doesn’t help your credit score. Collection accounts are still negative as long as they are on your reports.

I assume you have your three-bureau credit reports. If not, get them from AnnualCreditReport.com. You should be focused on two things: 1. Making sure everything is accurate and complete and 2. Building positive new credit references to outweigh the old negatives.

If there is anything inaccurate or incomplete about the way your collection accounts are being reported, you have the right to dispute those errors with the credit reporting agencies. If the information cannot be confirmed with the source (and it may not be, given you settled these debts a couple of years ago), the listing must be removed.

Secondly, you should have at least two current, active, positive credit references on your credit report. If you don’t, you may want to ask your husband to add you on to one of his accounts as a joint accountholder. Choose a major credit card with a long positive payment history and a low balance. Once it reports to your credit, you’ll benefit from the entire history on the account.

For more strategies, please visit the FreeRateSearch.com Information Center where I have published several articles about credit and credit scores.

Let us know how it goes!

“Marla” asks: I have $20,000 and my new husband has $9,000 in credit card debt. Should I pay off his credit card and only have 11,000 for a down payment on a house, or should I use the entire $20,000 for the down payment?

Great question! There are several things to look at here.

My first question would be: who will be getting the mortgage? Just because you are married, doesn’t mean you both have to be on the loan. Whether you decide to get a loan together, or in the name of just one of you, depends on your income, credit scores and qualifications. If your credit scores are significantly higher than your hubbie’s, and your income alone is sufficient for the loan, then you could get the loan using your down payment and keep him off the application. (In most cases, even if one of you gets the loan, however, the home title will have to be held jointly because of state property laws.)

However, let’s assume you will get the loan together. You need to get both of your three bureau credit scores to make sure they are accurate, and to see who has the higher credit scores. Usually the credit scores of the person with the highest income will be used as the primary borrower, and the other person will be the co-borrower. If your credit scores are significantly different, you may have some work to do on his (or your) credit before you buy.

The other thing to look at is what a different down payment will do to your loan options and rates. Loan programs and rates often change quite a bit when you go above certain thresholds such as borrowing more than 80% of the home’s value, 90%, or 95%. If you have enough money for a 20% down payment, for example, and your credit scores and income qualify you for a good loan, you may want to put the money into the house and then tackle the debt.

Keep in mind that the lender will be looking primarily at the “debt ratio” not your husband’s overall level of debt. To figure your debt ratio, it will take into account the required monthly payments on your mortgage (including principal, interest taxes and insurance) and other required debt payments. For your husband’s credit cards, that may mean only looking at a required payment of $200 or so, depending on the minimum payments reported for his credit card debt on his credit reports. If you don’t have much other debt (car loans, student loans, etc.) then that minimum payment may have little impact on the debt ratio or the loan.

I would recommend you run a search and then ask your lender to help you evaluate these various scenarios to find which one gets you the right loan. Remember, once you are registered, you can change your search criteria as well. So you can run the loan with the $20,000 down payment and then with a smaller one. (For the most accurate results, though, you should both have your 3-bureau FICO scores.)

Finally, the biggest challenge for you two may not be choosing a loan but marrying your different styles of handling money. It sounds like perhaps you are a saver and he’s a spender. Not only do opposites attract (as I can say from personal experience!) but, money clashes can also push apart a couple just as easily. A great book for the two of you to read together would be Olivia Mellan’s book, Money Harmony.

Good luck on your home purchase and the best to both of you!

A frustrated homebuyer-to-be asks:

Q: My credit score is not good. Most of it is because I have two accounts that are the same on my credit report, and two that are paid off but still on my credit report. How can I get someone to help me finance a home? I pay bills on time but at that time in my life I had a sick fiancée to care for.

A: Negative information does not haunt you forever. Under the federal Fair Credit Reporting Act, late payments can be reported for seven years and collection accounts may be reported for up to seven and a half years, whether they are paid or unpaid, Bankruptcies can remain for ten. But the good news is, the older that information becomes, the less important it is to your credit. Accounts in the past two years typically carry the most weight.

I don’t know how recent your problems were, but I suspect part of the trouble you are having is that you don’t have current positive references on your file. I would recommend you check your credit reports and scores.

With your three bureau credit reports and scores in hand, you can use FreeRateSearch.com to find out what home loans may be available. After you complete your initial mortgage rate search, you can also try “what if” scenarios by changing the information you submit — what if you increase your income, for example, or reduce your proposed loan amount? This may help you find a loan that works for you.

Most mortgage lenders like to see at least four current credit references paid on time. If not, you may need to start with a secured credit card.

I would also recommend you dispute the account that is being reported twice. If there is a duplicate account for the same item, one should be removed.

If you really focus on your credit, and make sure your other qualifications are strong (down payment, steady income, etc.) you should be on your way to becoming a homeowner.