Get into a house for just 3.5% down

Get into a house for just 3.5% down
Dangerous subprime lending might be history, but you can still buy a home with little money down -- if you qualify for an FHA-backed mortgage. Is one right for you?

By SmartMoney
The days of putting little money down to buy a home aren't over.


Fixed-rate or adjustable mortgage?
After years of risky mortgages backed by small down payments, most lenders aren't underwriting loans without significant sums upfront and high credit scores. But a decades-old program can still put homebuyers in houses for next to nothing.

Mortgages insured by the Federal Housing Administration allow borrowers to get approved with down payments as small as 3.5%, without high credit scores.

As millions of Americans now realize, getting into a house with little money down has its disadvantages. Borrowers who have pumped scant equity into their homes are often more willing to walk away during lean times that keep them from making payments. This risk is further elevated when home values decline and troubled borrowers are unable to refinance or sell at a price that covers their losses.

Still, FHA-insured mortgages are far less risky than the subprime mortgages that lenders originated before the housing bust. FHA-insured mortgages require documentation and proof that the borrowers are capable of making the monthly payments. (Most subprime mortgages didn't require such proof.)

Compared with the terms of traditional home loans, the looser terms of FHA-insured mortgages have helped make them more popular. Today, FHA-insured mortgages make up about 25% of the mortgage market, up from 3% in 2006, FHA Commissioner David Stevens said. The FHA insured nearly 1.95 million loans in fiscal 2009 -- up 62.3% from a year earlier.

"FHA-insured mortgages are one of the only games in town, especially if you can't qualify for a traditional mortgage," said Gibran Nicholas, the chairman of the CMPS Institute in Ann Arbor, Mich., which trains and certifies mortgage lenders and brokers. "Now that the subprime market is gone, FHA is filling the gap."

Here's how to determine whether an FHA-insured mortgage is right for you.

Do you meet the qualifications?
Most borrowers of FHA-insured mortgages have stable incomes and need more flexibility with their credit histories and debt loads than conventional mortgages might allow, said Lemar Wooley, a spokesman for the Department of Housing and Urban Development, of which the FHA is a part.

"When analyzing the borrower's credit, we expect lenders to examine the overall pattern of credit behavior rather than isolated occurrences of poor performance or relying solely on a credit score," Wooley said. This includes a borrower's rental or mortgage payment history, debts, collections, previous foreclosures and bankruptcies. Borrowers with credit scores lower than 500 must make 10% down payments to be eligible, he said.

Today, 78% of FHA-insured purchase mortgages belong to first-time homebuyers, thanks to looser requirements and the comparatively small 3.5% down payment, Wooley said. Another perk is that borrowers are permitted gift assistance for the down payments from their families or their employers or from a government entity -- but not from the seller.

Rigorous documentation requirements mitigate the risk associated with making a small down payment -- in stark contrast to the glory days of subprime mortgages, when documentation was rarely required and verified, said Nicholas, of the CMPS Institute. FHA borrowers must prove that they have the cash to close the mortgage by presenting their most recent bank statements. They also must show W2 statements and pay stubs to prove that they can repay the mortgages.

In addition, borrowers' total mortgage payments (including principal, interest, taxes and insurance) cannot exceed 31% of their gross monthly income, and total debt-to-income ratio (total mortgage payment plus all other debts) cannot exceed 43% of their gross monthly income.

Can you afford the costs?
Interest rates on FHA mortgages are generally half a percentage point to three-quarters of a point higher than those on non-FHA mortgages. Thirty-year fixed-rate FHA-insured mortgages had an average rate of 5.86% on Oct. 22, compared with an average rate of 5.15% for similar non-FHA mortgages.

In addition, there are unique fees that accompany an FHA-insured mortgage. A borrower is required to pay 1.75% of the loan amount upfront, or that fee can be financed into the mortgage. FHA-insured mortgages also require a 0.5% annual premium based on the outstanding loan balance, which is financed into the mortgage. These fees pay for the FHA insurance that makes the loan possible, HUD spokesman Wooley said.

A borrower who has a high credit score -- typically, a minimum of 720 -- and a 20% down payment is often better off with a traditional, non-FHA mortgage, which carries fewer fees. However, the math gets tricky when a borrower has a high credit score but a down payment of less than 20%. In those cases, the borrower will have to pay for private mortgage insurance (PMI). Depending on your situation, PMI can cost less, the same as or more than FHA fees.

Crunch the numbers here to see how much you would pay in PMI.

What protections are in place for the lender?
Lenders are comfortable providing FHA-insured mortgages because they don't bear the loss if a borrower defaults and goes into foreclosure -- the FHA does.

In such a scenario, the FHA pays the lender an insurance claim equal to the sum of the unpaid principal balance of the loan, the foregone interest and a portion of the foreclosure expenses, Wooley said. The FHA pays for these losses by dipping into its insurance fund, which holds the insurance fees borrowers pay, Nicholas said.

What about for the borrower?
When borrowers are unable to keep up with mortgage payments, lenders are required to work with them to avoid foreclosure, Wooley said. This is part of the FHA's loss-mitigation program.

Now mortgage servicers can use this program to reduce monthly mortgage payments to 31% of the borrower's monthly gross income, said Keith Gumbinger, a vice president at HSH Associates, which tracks mortgage data. To qualify, borrowers must be unable to keep up with their mortgage payments but cannot be more than 30 days delinquent.

Although this program can help prevent foreclosures, it doesn't guarantee that borrowers ultimately will be able to hold on to their homes, Gumbinger said.


Who is taking the biggest risk?
Under certain circumstances -- primarily, rampant FHA-insured mortgage underwriting and declining home values -- these mortgages present a significant risk to the economy. When home values decline, a borrower who has little equity in a home and is falling behind on payments is more likely to walk away from the property than a borrower who has more invested in a home, said Dean Baker, a co-director at the Center for Economic and Policy Research in Washington, D.C.
Fixed-rate or adjustable mortgage?

If a significant number of FHA-insured mortgage borrowers go into foreclosure, the FHA insurance fund could become depleted, and the government might have to bail it out, Nicholas said. Those losses could ultimately be borne by taxpayers or get added to the country's debt, Baker said.

This article was reported by AnnaMaria Andriotis for SmartMoney.

Home sales rise 9.4 percent in September

‘There's a mini-boom going on in the housing market,’ pollster says

Michael Conroy / AP


WASHINGTON - Home resales in September clocked the largest monthly increase in 26 years as buyers scrambled to complete their purchases before a tax credit for first-time owners expires.

Sales jumped 9.4 percent to a seasonally adjusted annual rate of 5.57 million last month, from a downwardly revised pace of 5.1 million in August, the National Association of Realtors said Friday.

That pace was the strongest in two years and beat Wall Street forecasts. Sales had been expected to rise to an annual rate of 5.35 million, according to economists surveyed by Thomson Reuters.

"There's a mini-boom going on in the housing market," said Thomas Popik, who conducts a monthly survey of real estate agents for Campbell Communications, a research firm.

Nationwide sales are up nearly 24 percent from their bottom in January, but are still down 23 percent from four years ago.

Prices, however, continued to be dragged down by foreclosures and short sales, where the mortgage exceeds the sales price. The median price last month was $174,900, down almost 9 percent from $191,200 a year earlier, and slightly lower than August's median of $177,300.

The inventory of unsold homes on the market fell about 7 percent to 3.63 million. That's less than an eight-month supply at the current sales pace, and the lowest level since March 2007.

Sales rose around the country, especially in the West, where they grew 13 percent from a month earlier. Foreclosure sales are booming in cities like Los Angeles, San Diego and Las Vegas.

First-time homebuyers and investors are snapping up those homes and taking advantage of low mortgage rates. These buyers can also take advantage of a tax credit of 10 percent of the sales price, up to $8,000, if the sale is completed by the end of November.

The tax credit is so important to some buyers that they are adding a clause to their contracts, allowing them to back out if the sale doesn't close by Nov. 30. However, economists note that bargain-priced foreclosures and low mortgage rates are making a big contribution to the sales boom.

"We think the housing market has touched bottom and it is now only a matter of time until home prices stabilize — something that we anticipate to occur in late 2010," wrote Joseph LaVorgna, chief U.S. economist at Deutsche Bank.

Prices could fall further because rising unemployment leads to more foreclosures. The jobless rate, currently at 9.8 percent is expected to rise as high as 10.5 percent next year, causing more people to fall behind on their mortgages.

"There's more supply that's going to come into the marketplace," said Stan Humphries, chief economist at real estate Web site Zillow.com. "That additional supply will outpace demand."

With concerns about the housing market still prominent, Congress is considering several proposals to extend the tax credit for first-time buyers. Senators Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., want to extend it through June 30, and expand it to include all home buyers, at an estimated cost of $16.7 billion.

Realtors and homebuilders are loudly in favor, arguing that the tax credit is crucial to get the housing market back on its feet.

"We are not there in terms of removing the consumer fear factor," said Lawrence Yun, the Realtors' chief economist.

However, some analysts say the tax credit may not be as critical to the housing market as real estate agents suggest. "The group has an incentive to talk up the effects of the credit as it is urging Congress to extend it, and it therefore may be exaggerating the credit's effects," wrote Zach Pandl, an economist with Nomura Securities.

One potential roadblock to an extension also emerged this week. There are concerns that some of the 1.5 million applications for the tax credit are fraudulent.

At a hearing on Thursday the Treasury Department's inspector general for taxes questioned the legitimacy of some 100,000 claims for the credit, potentially including some illegal immigrants and 580 people under 18. The youngest taxpayers to apply for the credit were 4 years old.

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Open house to showcase 'green home'

Open house to showcase 'green home'
Friday, October 16, 2009

Nashville Business Journal

An open house later this month provides the chance to glimpse the future and help a good cause.

Castle Contractors, the Brentwood-based custom home builder, is inviting the public to visit “The Living Green in Green Hills Show House” next weekend.

Advance tickets are $10, available at castlecontractors.com, or $12 at the door. Proceeds will benefit the Ronald McDonald House.

“From details behind the walls such as cellulose insulation and radiant barrier house wrap to roof decking to regulate temperature, to reclaimed and rebuilt newel posts, flooring, light fixtures, breams and bricks, the home embraces the future of green living,” claims a news release.

The home at 4208 Arundel Court is a certified as a National Association of Homebuilders Green Home.

It will be open for tours from 10 a.m. to 8 p.m. Oct. 23-24, and from 1 p.m. to 6 p.m. Oct. 25. Free shuttle bus service will be available at Woodmont Baptist Church, 2100 Woodmont Blvd.

According to the Castle Contractors’ Web site, the 4,739-square-foot home is listed for sale at $1.3 million.

Investing your IRA in Real Estate

Did you know you can invest your retirement account in real estate? Few people are aware that the IRS allows the use of self-directed IRAs to purchase an investment property. All rental income would accumulate tax free, as would any capital gains when you sell the property. Just like any other investment in an IRA (stocks, mutual funds), all appreciation derived from real estae is tax deferred. If you have a Roth IRA, capital gains and income would be exempt from any taxes. With so many bargains out there right now in real estate, this can be a great way to invest your IRAs or SEPs.

Most brokerage firms or mutual funds are not equipped to deal with the administration of holding individual properties of real estate in an IRA account. I'll be glad to answer questions you might have and/or put you in touch with administrator who specializes in these real estate related IRAs. I can also help you find an investment property that is right for you. You can reach me at 615-545-86511 or at jeff@jefffulmer.com.

Williamson County Association of REALTORS® Announces September Housing Numbers

October 7, 2009 (Franklin, TN)—The Williamson County Association of REALTORS® today announces the sale of homes statistics for Williamson County, Tn. for the month of September 2009. There were 220 residential and condominium closings reported for the month of September, according to figures provided by RealTracs Solutions, the multiple listing service used by REALTORS® in the Middle-Tennessee area.

Compared to September of 2008, the single family residential closings decreased 10 percent and the median price decreased by 5 percent. Condominiums closings have decreased by 8 percent and the median price decreased by 8 percent. The average days on the market (DOM) for residential homes have increased by 12 days and condominiums have increased by 5 days. Days on the market have been consistent since the onset of 2009, with the days ranging from 89 – 104 days.

"Williamson County’s real estate sales continue to perform more strongly than most of the Country’s sales, but that performance has not mitigated consumer apprehension in spending money on large investment items. Conversely, at entry price points, many individuals are scrambling to take advantage of the first-time home buyer tax credit before it expires at the end of next month. This is a great time to take advantage of low interest rates and excellent incentives by the Federal Government and some builders,” said Diane Johnson, 2009 President of the Williamson County Association of REALTORS®.

The Williamson County Association of REALTORS® is the professional trade organization servicing the real estate industry in Williamson County. Established in 1962, the association provides professional development and support services for real estate professionals. The association has over 1,550 members and is headquartered in Franklin, Tn.

For Full Report, click here.

SEPTEMBER HOME SALES STEADY, PENDINGS REMAIN STRONG

SEPTEMBER HOME SALES STEADY, PENDINGS REMAIN STRONG
October 8, 2009


There were 1,935 home closings reported for September, which is down 6.7 percent from the 2,075 closing reported in September of last year.

Third quarter closings were at 6,213 for 2009, down 9.1 percent from the 6,836 closings during the third quarter of 2008.

Year-to-date closings are 15,453, compared with 19,833 through September of 2008, which is a decrease of 22.1 percent.

There were 2,120 sales pending at the end of September and the average number of days on the market fo a single-family residence was 86.

The median price for a single-family home was $160,000 in September, while the median price for a condominium was $142,500. That compares with median prices of $168,900 for single-family homes and $148,500 for condominiums in September of 2008.

Inventory is at 23,975 properties, compared with 24,270 available at the end of September last year. Single-family inventory is actually down and condominium inventory is nearly the same amount as was available at this time last year. Multi-family and farm/land/lot inventory continues to be higher than last year's levels.

You can click here for a copy of the news release with additional details on home sales data for September, the third quarter and year-to-date 2009 compared with 2008.