Tips on how to save up for a down payment

iStock_000009450603SmallGet Rich Slowly recently posted How to Save Up for a Down Payment Fast.  I’d like to respond to some of the ideas offered in GRS’s post from a Mortgage Professional’s viewpoint and offer my advice.

Here are some of the suggestions on How to Save Up for Down Payment Fast along with my 2 cents (in italics).

Get help from family. My dad pitched in $10,000 as an advance on my inheritance. When he passes away, I’ll get less money than my sisters, which he thought was the fair way to do it.

Mortgage lenders would most likely be treat this as a gift. Check with your lender to see what type of documentation will be required. It’s possible the parent would need to provide a gift letter which basically states no repayment is expected. Various mortgage programs may have requirements as to how much gift funds are allowed on a certain transaction depending on the type of mortgage.

Buy a fixer-upper that doesn’t need immediate fixing. We bought a house in less-than-pristine condition, which meant we paid less. We then gradually fixed it up, doing most of the work ourselves. Think of it as trading a larger down payment today for expenses that are spread out over the next year or few.

A home that needs just cosmetic fixing up probably will not be an issue to the lender. If you find a home that needs a little extra TLC or a lot of TLC, you may want to consider an FHA 203k mortgage. An FHA 203k mortgage will allow repairs to be financed into the mortgage with a very low down payment.

Sell your stuff. I have moved a few times in my life, and each time I made $1,000 or more from selling stuff on Craigslist, to colleagues, or at yard sales. Bonus: less stuff to move!

Great idea. Just make sure that you keep records of the transactions. Keep copies of your ads along with any receipts. You will need to show where the funds came from. “Cash” is never okay when it comes to funds for closing when buying a home. Large deposits that cannot be easily identified as payroll need to be documented.

Use IRAs. As an adviser for a retirement-planning service, it almost hurts me to type this. But if you are willing to retire later in exchange for a home today, you have options. Taxable distributions from an IRA might be exempt from the pre-59 ½ 10 percent penalty (but not taxes) if you are a “first-time home buyer,” which the IRS defines as someone who “had no present interest in a main home during the 2-year period ending on the date of acquisition of the home.” So you might still be eligible even if you have owned a home previously but not recently. The penalty-free distribution is limited to $10,000 per qualified person (including both spouses if both are “first-time buyers”). Also, contributions to a Roth IRA can be withdrawn any time tax- and penalty-free; however, this doesn’t apply to the growth or a Roth employer-sponsored account. But before you touch any of your IRAs, make sure you know the rules.

You may also be able to borrower against your 401k through the plan administrator and pay yourself back instead of doing a “withdrawal”. Check with your plan administrator to see what your options are.

Sell your body. Participation in medical tests can earn you money or free health care. I know it sounds weird, but it’s how I got my wisdom teeth pulled for free. Visit the CISCRP.org website to search for clinical trials in your area.

I almost excluded this one from my post… except I have to add that if you do this, make sure you have documentation to show where the funds came from.

Get help from your boss. If you are a valued employee, you might be able to ask for a raise or an advance on your bonus or paycheck. You might also ask if you can take a benefit in the form of cash. This can be tricky for employers, since it can mess up their accounting. But it might be worth a shot if you have a good relationship with the purse-strings-that-be. Feel free to play the “we’re having a baby!” card if you work for a family-friendly company.

An advance would probably be viewed as a loan and may not be eligible for funds for closing. If it is an advance on a bonus, it *might* work…check with your lender.

Getting a raise is sweet. Be careful of changes to the structure of how you are paid. If you are paid salary, a raise is easy to factor in for qualifying. With hourly wages, it shouldn’t be difficult to figure out income either. However, if you’re adjusting your salary lower to have a larger commission structure or bonus, check with your mortgage professional first as it’s very probable that your income used for qualifying may be limited to the reduced salary – even if the end result is more income. 

Bonus income may be used for down payment, however, unless it is something that you can document receiving for the past two years from your employer, it may not be used for income qualifying purposes.

Get help from the government. Some state and local governments offer assistance to younger or lower- to middle-income citizens. Uncle Sam’s FHA also has programs for cash-poor home buyers. But if you are getting a loan that requires a down payment lower than 20 percent of the home’s value, factor in the possible higher long-term costs, such as a higher interest rate and private mortgage insurance.

FHA does not have income limits and does offer lower down payments and, believe it or not, conventional mortgages now offer slightly lower down payments than FHA. Borrowers who have served our country may qualify for a VA loan with no or greatly reduced down payment required. In addition, if you are willing to buy in a rural area, you can consider an USDA mortgage which does not have a down payment required as long as you meet income limits.

Down payment assistance and grant programs are also an option for home buyers with moderate or lower incomes. The income limit for the Home Advantage program is $97,000. Some down payment assistance programs have income limits that are lower than Home Advantage. 

In Get Rich Slowly’s blog post, there are some comments where they oppose buying a home with less than a “full” down payment. They argue that it would better for people to rent a larger apartment and save up for a down payment. While I do agree that there are times when renting does make sense, it really boils down to that individuals needs and goals. In the greater Seattle area, rents are on the rise and currently, one may be able to buy a home or condo with what they would be paying for in rent.  In addition, it could take quite some time for folks to save up for a larger down payment.  I would rather see someone put less money down towards a home instead of tapping all of their savings. Owning a home can be expensive and unlike renting, when something goes wrong, it’s probably going to be your expense.

One tip I offer in the home buyer classes that I teach is to start practicing making your mortgage payment. If you have an idea of what you want to spend for your monthly mortgage payment, and it’s more than what you’re currently paying in rent, pay the difference to your savings account and “practice” making that mortgage payment. You’ll see if you’re comfortable skipping your lattes making that bigger payment and meanwhile, build up your savings.

You may also want to delay paying off debts. Paying off debts eliminates funds that could go towards your funds for closing and it may also hurt your credit scores. Lenders will use the minimum payment due as reflected on your credit report for revolving debts when factoring your debt-to-income ratios for qualifying. So even though you have a credit balance looming and paying off that credit card feels like the right thing to do, it may actually hurt you when it comes to qualifying for a mortgage. In some cases, lenders like to see at least 3 active tradelines on borrowers credit report. Also, some installment debts with a shorter term (10 months or less) remaining on the loan, may be able to exclude the debt payment from the ratios.  You can always pay off debts after you close on your new home.

Bottom line, if you are considering buying a home, you cannot start the process too early with your lender. I encourage you to meet with a local licensed loan officer to create a game plan – even if you’re not planning on buying for a year or more.

PS: If you are thinking about buying a home located anywhere in Washington state, please contact me. I am happy to help you through the mortgage process as your Licensed Loan Officer.

Freddie Mac report reveals lowest mortgage rates of 2014

Every week, Freddie Mac releases their Prime Mortgage Market Survey (PMMS) based on a survey a mix of 125 lenders on what committed mortgage rates and points were during the previous week. Based on Freddie Mac’s report, the average rate for a 30 year fixed rate mortgage averaged 3.80 percent with an average 0.6 points. This is down from last week when it averaged 3.93 percent. A year ago at this time, the 30-year averaged 4.47 percent.

Freddie_Mac_Rate_Dec_18

Freddie Mac’s Chief Economist Frank Notaft states: “The 30-year fixed mortgage rate dropped to its lowest point of 2014 this week. Mortgage rates fell along with 10-year Treasury yields, which closed at their lowest level since May 2013.”

The lower rates we are currently witnessing creates a great opportunity for home owners to refinance. However, in order to be able to capture a low mortgage interest rate, you must be able to move quickly as rates can and do change often.

Should  you refinance?

You may be a good candidate to refinance if:

  • If your mortgage rate is in the mid-4’s or higher; or
  • You are currently payment mortgage insurance (private or FHA mortgage insurance); or
  • You have an adjustable rate mortgage you would like to fix;
  • You would like to shorten the term of your current mortgage;
  • You have a second mortgage or HELOC that you wish to roll into one mortgage; or
  • You would like to take equity from your home.

I highly recommend getting a detailed written rate quote from a local licensed loan officer along with an amortization schedule so you can review the proposed scenario to your current mortgage. There should be no cost to you for a quote, nor does the loan officer have to run your credit at this point. I am happy to help you review your current scenario to see if refinancing makes sense as long as your home is located anywhere in Washington state, where I’m licensed.  Click here if I can provide you with a no-hassle rate quote.

Refinancing probably does not make sense if you do not plan on retaining your home long enough to break even on the cost to refi.

How can you lock in a low mortgage rate?

You need to be able to take action quickly. If you subscribe to my blog, you know that on Monday’s I share what may impact mortgage rates for the week and where current rates are for the 30 and 15 year fixed conventional. It’s sort of like my personal PMMS. You can get an idea of how rates change from week to week. In order to take advantage and lock in today’s low rates, you have to be ready to lock!

Here’s what I recommend:

  • complete a loan application. Even if you are not quite ready to pull the trigger and lock, your lender is going to need to have a complete application from you before they can lock in your loan.
  • allow the lender to run your credit. Again, the lender is going to need to know your actual credit scores as they are currently being reported as a majority of mortgage rates are impacted by what your credit score is. If there is an issue with your credit, your loan officer should be able to help provide advice on how to improve your score, if needed.
  • start gathering supporting documentation that will be needed for your refinance. Once you lock in the rate,  you will have a specific time period in which you will need to close the loan in order to avoid having to pay a lock extension fee.
  • determine what rate/price you are aiming for and share information this with your loan officer. Try to be realistic. If you will save hundreds of dollars each month, it may be worth pulling the trigger and locking now verses losing the opportunity entirely when rates rise.

Keep in mind that lock desk may have certain hours. So if you are reviewing quotes provided to you first thing in the morning, and responding to the loan officer with permission to lock after 5 pm, you may have to wait until the next day (and the next day’s pricing) to lock. Mortgage rates and the pricing for that rate, may change throughout the day. It’s similar to the stock market. Be prepared to review and approve quotes for the locks as soon as they’re provided to you.

Again, this is a great opportunity to kick off 2015 by saving money and reducing your monthly cash flow. When you refinance, you will receive a refund of your existing escrow reserve account (taxes and insurance) from your current mortgage servicer in about 2-3 weeks after closing on the new loan. Speaking of your mortgage servicer, you do NOT have to go back to who you make your mortgage payments to for a refi.

If I can help you refinance (or purchase) your primary residence, vacation/second home, or investment property located anywhere in Washington state, please contact me!

Last FOMC Meeting of 2014 and how it impacts mortgage rates [LIVE POST]

20140504_210758Today the Fed will wrap up their 2 day meeting around 11:00 am PST. All ears will be anxiously awaiting any clues as to what their policy will be in 2015.

It’s interesting to see how the markets react to “Fed Day” so I thought I’d do a “live post” today, updating this throughout the day with current mortgage rates.

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Home Buyer Class in Lake Forest Park

Seattle Home Buyer Classes

I will be teaching a home buyer class in Seattle with Jim Repppond of Coldwell Banker Danforth on Saturday, January 24, 2015 at the Lake Forest Park Library.

The class is sponsored by the Washington State Housing Finance Commission. Students who attend are eligible for programs like Home Advantage or House Key Opportunity (the Washington state bond program) or Freddie Mac Home Possible. Students are also eligible for various down payment assistance programs and MCC (mortgage credit certificates).

If you are considering buying a home with your spouse, partner or friend, they will need to attend the class with you to qualify for the programs.  You do not need to be a first time home buyer to qualify for many of the mortgage programs. And of course, you’re welcome to attend if you’re not interested in down payment assistance programs and you just want to learn more about the home buying process.

Space is limited, so please RSVP today

When: Saturday, January 24, 2015 from 11:00 am – 4:00 pm. We do our best to wrap up the class by 4:00 pm. The WSHFC requires that the classes be at least five hours.

Where: Lake Forest Park Library is located at 17171 Bothell Way NE, Lake Forest Park, WA 98155. Click here for map and directions.

Cost: FREE and lunch is provided!  Typically lunch is something like pizza.  If you have any special dietary needs or preferences, please bring a sack lunch. We will be teaching through lunch in the interest of keeping the class time shorter.

RSVP for our Seattle Home Buyer Class by clicking here.

Click here to see all current home buyer classes that I’m teaching.

What May Impact Mortgage Rates this week: December 15, 2014 – Mortgage rates IMPROVED

mortgageporter-economyLast week, rates bumped along 14 months lows. Those who were in position to lock with a mortgage application started, were able to secure low rates so they will be able to benefit from lower mortgage payments in the New Year. Before a lender locks in an interest rate, they need to have a complete application, including a credit report, so they know how to price the rate (low mid-credit scores are used) and if you actually qualify for the refi. It takes about 20 – 30 minutes to complete an on-line application, so if you are toying with refinancing right now, I highly recommend you contact your local lender (I can help you if your home is located in Washington state) so that you can be ready to lock in a very low mortgage rate.

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2015 FHA Loan Limits for Washington State

FHA loan limits for 2015 are the same as 2014 with exception to King County, Snohomish County and Pierce County, which were all increased.

The 2014 FHA loan limits for Washington state are determined by county. Here is a list in alphabetical order by county:

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2015 Conforming Loan Limits for Washington State

Earlier this month, the FHFA announced the 2015 conforming loan limits for homes located in Washington state. A conforming loan is a conventional loan (ie Fannie Mae or Freddie Mac). Loan amounts that exceed the conforming loan limit are considered jumbo loans (or non-conforming) and have different underwriting guidelines and rates.

The FHFA increased the loan limits in three counties (King, Pierce and Snohomish) effective 2015. All other counties will have the same loan limits as 2014.

2015 Conforming Loan Limits for Homes Located in Washington State

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Seattle Real Estate Chat featuring Houseline’s Bob Stewart [Video]

In this episode of Seattle RE Chat, Jim Reppond and I have a special guest, Bob Stewart. Many in the real estate community know Bob as one of the founders of Active Rain. He has recently been involved with launching a new mobile application to created for home buyers and real estate agents called Houseline.

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