Condos come in many forms including high-rises, converted apartment buildings and even some town-homes may be condominiums depending on how they are legally described. If you’re planning on buying a condo and not paying cash for your purchase, here are a few things to look out for where lenders may have an issue with.
Buying a Condo or Townhome?
November 12, 2010 by 1 Comment
The Mortgage Process: Contemplating Buying a Home to Getting Preapproved
November 9, 2010 by Leave a Comment
For a while now, I’ve had this idea floating around in my head that with four years of articles at Mortgage Porter, I really should organize the post by the actual mortgage process. Right now, my blog is traditionally organized chronologically and by categories. I’m not changing that at all…what I am planning on doing is reposting the articles I most commonly refer to for my clients in an order that follows the mortgage process. This will be a post I will continue to update with new content via links to the article…it’s a work in progress!
In my opinion, someone considering buying a home should start researching the process months before actually entering into a purchase and sales agreement. So that’s where we’ll start:
Considering Buying a Home?
Getting on Track to Buy Your Home
Tips for Improving Your Credit Score
Game Plan for if your credit score is low.
Getting Preapproved
Are You Really Preapproved or just Prequalified?
Debt to Income Ratios (aka DTI)
Do I Really Have to Provide All Pages of My Bank Statements?
What is required to document income?
Documentation for Self Employed or Commissioned Paid Borrowers
Why it pays to get preapproved early: You may think you know your credit score
What should a preapproval letter contain?
Relocating to Washington State and getting preapproved for a mortgage
Is my Preapproval Letter Still Valid wth all the Rate Changes?
Planning Your Funds for Closing
Funds for closing when you’re buying a home
How much do I need for a down payment?
Gifts from Parents: FHA and Conventional
We’ve just started the process with this post addressing considering buying a home to getting preapproved! Watch for future post where I’ll organize articles I’ve written on being in a transaction.
Buying a Home with Owner Occupied Financing After Refinancing Your Home as Owner Occupied
October 28, 2010 by 13 Comments
I’m seeing a trend where home owners are refinancing their current home as “owner occupied” and then weeks after closing, try buying another home as “owner occupied”. You cannot have two owner occupied homes. It’s really that simple.
I’ve had a couple of surprised people contact me who thought they could buy a home just following a refinance only to learn by their mortgage originator that they have to finance the new home as an investment property. Financing an investment property not only offers a slightly higher interest rate than a mortgage for a primary residence, it also has tougher guidelines with higher down payment requirements and greater reserves (savings).
If you are considering refinancing your primary residence and possibly buying another home, you should discuss this with your mortgage originator as soon as possible. You will be signing a deed of trust which has language that you intend to occupy that home for 12 months. Some folks might feel that the “intending to occupy” means that they can refinance as owner occupied and a couple months later buy “owner occupied” and odds are, they will be caught. It may be purely unintended for this to happen, but be prepared for the possibility the new purchase to be treated as an investment property, even if you’re going to live there.
If you’re considering taking advantage of the lower home prices and lower rates, you may want to delay your refinance of your current “primary residence” or talk to your mortgage originator about refinancing your current home as an investment property. Your next purchase might qualify as a second home, however the property typically needs to be about 50 miles away from your primary residence (the one you just refinanced) and it is the underwriter’s call on whether or not the second home “makes sense”…this can be a real grey area.
Life happens and we know plans change. Be upfront with your mortgage professional if you’re thinking about buying a home. You may want to ask them to verify with your personal scenario with an underwriter. Finding yourself in the middle of a transaction to buy your next home and having it declined as owner occupied can be an expensive experience.
Related post:
Is it a Primary Residence, Second Home or Investment Property
Can I Convert My Existing Home to an Investment Property to Buy My Next Home?
How to Buy a Seattle Home with $10,000
April 28, 2010 by 2 Comments
NOTE: Mortgage rates quoted in this post from April 2010 are outdated and no longer valid. For a current mortgage rate quote for a home located anywhere in Washington, please click here. Also, other programs available since this post was published.
I recently had someone getting ready to buy their first home ask me if $10,000 would be enough for a down payment. If she had served in the military, she could possibly qualify for a zero down VA loan; this was not an option for her. USDA loans also offer 100% financing but the area she’s considering is not classified as rural.
An FHA loan will currently allow her to buy a home with as little as 3.5% of the sales price. Until this summer*, sellers can contribute up to 6% of the sales price towards allowable closing costs and prepaids (*in a few months, this will be reduced to 3%).
So how much with $10,000 buy? How about a sales price of $285,000. Here’s how that pencils out.
$285,000 x 3.5% required minimum down payment = $9,975. This is the buyers minimum required investment if utilizing an FHA insured loan. A parent can gift funds towards this amount, but the seller cannot.
The rate (as of writing this post 4/28/2010) for an FHA insured 30 year fixed mortgage is 5.000% assuming we’re closing in 30 days (APR 5.620) and priced with zero points to help keep the closing costs down. Pricing the loan with zero points means that you’re asking the seller to contribute $2,750 less than they would if your rate was priced with a point (1% of the loan amount). This may make your offer more acceptable.
Based on this scenario, if the Seller contributes $5,500 towards allowable closing cost and prepaids, you’ll wind up needing approximately $10,000 for your down payment and remaining closing costs.
I did use 6 months for property taxes, which will vary depending on when your first mortgage payment is due. And I used 15 days of prorated interest which is based on closing in the middle of the month. Closing towards the end of the month reduces the prorated interest (your cost)…of course the trade off is that you don’t own the property until it’s closed.
The total monthly payment, including PITI and mortgage insurance, is going to be around $2,000 (depending on interest rate, taxes and home owners insurance). My scenario has a payment of $1981.
In addition to your down payment, you may be required to have reserve funds after closing of at least two months proposed mortgage payments. Based on this scenario, that would be around $4,000 in the bank (stocks, 401k, etc) after closing.
Also of note, your first payment will not be due until the month after closing unless you close on an interest credit. This is a great opportunity to “pay yourself” by putting that mortgage or former rent payment into your savings account. Owning a home does come with expenses…some not always planned.
If you are interested in buying a home located in Washington state, I’m happy to help. Please contact me or apply on-line by clicking the tab at the top this page.
What Should a Preapproval Letter Contain?
April 21, 2010 by Leave a Comment
This isn’t the first time I’ve written about preapproval letters at The Mortgage Porter…however it has been a while and I would say that with all the changes in the mortgage industry, your preapproval letter is more important than ever. Most Seattle area real estate agents will not accept an offer on a home that’s listed for sale without a bona fide preapproval letter.
Preapproval letters may vary in appearance and content from lender to lender. Some mortgage companies may have different protocal for when a preapproval letter may be issued. When I provide a preapproval letter, it means that I have a complete loan application, most likely with exception to the property address since the home buyer has not yet identified a home. It also means that the home buyer (i.e. borrower) has provided me all the necessary documenation that supports or backs up the information that has been provided on the loan application, such as
- income documenation (to make sure they qualify for the proposed montly mortgage payment)
- assets (at minimum, enough to cover the down payment and closing costs)
- credit report…everything seems to be based on your credit score from potential interest rates to what you qualify for. This is something that we need to pull if you are interested in obtaining an actual preapproval.
A good preapproval letter should address all of these items so that the seller and the real estate agents know how qualified the home buyer is. This is done in a manner in which not to violate the buyers privacy. For example, a seller or real estate agents should not see the buyers income, assets and credit scores. If a buyer wants to share that information with someone other than their mortgage professional, it is up to them! Instead, the preapproval letter will address that these items have been reviewed and are acceptable.
For example, I might include something like this in a preapproval letter:
This preapproval is due to your job stability and excellent credit. Funds to close this transaction are from your personal savings and a seller contribution in the amount of $5,000.
You can see that I have addressed income, assets and credit in this paragraph.
My preapproval letter also includes program type, the sales price and loan amount. Every so often I’ll have a real estate agent want me to leave the sales price blank. This is something that we can do IF the borrower has substantial cash reserves. I’ve found that some home buyers would rather not have their preapproval letters written this way…and I’m happy to provide several preapproval letters with staggered sales prices (as long as the borrower has documented the funds for down payment and closing costs).
You may find a total mortgage payment on a preapproval letter. This is because borrowers are qualified by their mortgage payment since loans have a certain allowed debt to income ratio. If a borrower is a little pushed with their ratios and they find a home within the sales price and loan amount they are preapproved for, but the property taxes or home owners insurance are higher than estimated or mortgage rates climb higher than what they were approved at, you no longer have a preapproved buyer. Whether or not your mortgage originator includes what payment you’re preapproved for, it’s important to ask.
Any conditions to the loan approval should be included on the preapproval letter. Standard conditions on our preapproval letter may include:
- satisfactory purchase and sales agreement
- satisfactory title commitment
- subject to appraisal
- subject to changes to financial situation as disclosed on the loan application (i.e. changes in your employment, debts or assets may jeopardize your preapproval status).
Preapproval letters may also have an expiration date. Before our current lending environment, preapproval letters would be valid for a longer period of time. Now credit reports and other supporting documentation “expire” earlier. Should your preapproval letter expire, they’re typically easy to update by just supplying your latest supporting documentation (paystub, bank statement, etc).
The letter should have a date and be signed by whomever prepared the letter with their contact information.
When I prepare a preapproval letter for someone who’s buying a home located in Washington, at the very least, they have gone through preliminary underwriting. If a mortgage originator has not obtained your documentation or if you have not completed a loan application, you are probably just prequalified and not preapproved.
With HUD’s new Good Faith Estimate, unless you have a property address, you may not receive a good faith estimate with your preapproval letter. This is a glitch with RESPA that I hope HUD finds a way to correct. Even HUD admits that if a mortgage professional provides a good faith estimate without a property address, they’re doing so at great risk (due to the financial liabilities packed in the new Good Faith Estimate). Your mortgage professional can provide you with a “work sheet” until you have a transaction (property address).
If you are shopping for a home anywhere in Washington state, I’m happy to help you become preapproved.
How Much Home Can I Afford?
October 8, 2009 by 2 Comments
This is a common question from first time home buyers. When working with home buyers who are just beginning the process, after discussing credit and other information, I like to ask in return:
- What type of monthly mortgage payment would you be comfortable making?
- How much money are you planning on using for a down payment and closing costs.
To me, it’s better to solve for your potential sales price rather than finding a home or getting your heart set on a certain sales price first before knowing what you actually qualify for.
For example, Seattle Sally has saved up $75,000 and would like to use $40,000 towards a home purchase. She has been paying anywhere from $2,200 – $2,000 a month for rent and would like to keep her payment around $2000.
NOTE: Rates quoted below are from October 2009 and are outdated. If you would like a current mortgage rate quote for your home located in Washington, please contact me.
Beginning with a conventional scenario, a payment of $2038 (principal, interest, estimated property taxes, estimated home owners insurance and private mortgage insurance) with about $40,000 for down payment and closing costs would produce a sales price of $325,000. This is based on a 30 year fixed rate of 4.625%* (apr 4.790).
A sales price of $365,000 with a 10% down payment and the sellers contributing towards closing costs would produce a payment of about $2283.
The only issue I would have with the conventional financing is that private mortgage insurance is that these days, pmi underwriters are picking all mortgages to pieces.
FHA would provide a total payment of $2076 with about $40,000 for down payment and closing costs and a sales price of $325,000. This is based on a rate of 4.875% (apr 5.400).
If we have the seller pay most of the closing costs and prepaids, a payment of $2287 would produce a sales price of $365,000 with Sally bringing in approx. $38,000 for down payment and closing.
One thing to consider, beyond more forgiving underwriting, with FHA is that your mortgage will be assumable. Imagine having a rate of 4.875% a few years from now when rates will most likely be much higher. If you are a seller competing with other similar home on the market, and you can offer an assumable mortgage at a tempting rate–this will be a serious advantage. Once inflation happens, mortgage rates will be much higher.
If Seattle Sally’s credit score comes in lower than expected (this is all based on very preliminary information) FHA may become a better option as well.
*rates quotes are as of 1:30pm on October 8, 2009 and are based on mid credit scores of 740 or higher. Rates can and do change often. Follow me on Twitter to see live rate quotes.
For your personal rate quote on a home located anywhere in Washington, click here.
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