Purchasing A Home Using Someone Else’s Money

Despite the fact that homeownership rates in America have eased from record levels in the past ten years, still almost two-thirds of Americans own their own homes.  And the good news is that credit conditions are easing and with latent demand from the Millennial Generation, the numbers are expected to get stronger with regard to homeownership during the next ten years.

Fannie Mae has conducted several American home ownership studies in the past. Among other things, they measured the desires to achieve home ownership and the impediments to achieving these desires. One would think that the major impediments to purchasing a home would be not having enough income to qualify or poor credit histories. In reality, the number one obstacle to becoming a homeowner in America is lack of capital.

Knowing the significance of this obstacle, the industry has done much to make obtaining real estate “cash friendly.” While the surging economy provided much impetus for increasing real estate purchases, industry initiatives have really paved the way to facilitate the whole process.

In this article, we will highlight some of the ways a prospective home purchaser can obtain the capital needed to purchase their first home or even a move-up to a larger home.

Lower down payment programs–In the old days, the VA (open only to active military and vets) and Rural Housing Programs were the only no-down payment options and FHA had a minimal (less than 5.0%) down payment requirement. Then many conventional programs decreased their down payment requirements, however, this trend has reversed itself in the past few years. Today, the VA and Rural Housing Programs still offer no down payment options and FHA is still less than 5.0% down for borrowers with good credit. In addition, some state and local housing agencies have programs that will lend or grant the money for the down payment for qualified low-to-moderate income borrowers.  More recently, Fannie Mae and Freddie Mac have again offered 3.0% down options for first time buyers.

Gifts–Typically a gift from an immediate relative is allowed for a purchase transaction. In the past, only FHA and VA loans allowed what is called 100% Gifts. This term means that the total cash necessary for the transaction is allowed to come from a gift. Conventional programs typically required at least 3% to 5% of the money to come from the purchaser’s own funds–although there are some exceptions for programs for low-to-moderate income borrowers.

Seller Contributions–Some of the money needed for closing costs typically can be paid by the seller in a purchase transaction. On VA loans, the seller can pay all closing costs. On FHA loans, the seller can pay up to 6.0% towards closing costs–but require a small minimum from the borrower’s funds. On minimum down payment conventional loans, the seller can pay up to 3.0% of the sales price towards closing costs.  Recently FHA has proposed lowering their standard 3.0% as well.

Lender-paid closing costs–With the advent of more complex secondary market vehicles, lenders have been able to develop more sophisticated mortgage products. Some of these products lessen the cash needed to purchase by lowering or eliminating the amount of closing costs a borrower has to pay. For example, the purchaser can opt for a higher rate, no-point mortgage which in fact lessens closing costs. An even higher rate may mean that the lender can offer an option which will pay for additional closing costs associated with the home purchase. In effect, the purchaser is financing their costs through a slightly higher interest rate.

Not to be outdone, mortgage insurance companies have offered options which helped lessen cash requirements. Conventional mortgage insurance in the past required an up-front cash payment of more than 1.0% of the sales price. These new options allow the monthly payment to be increased and eliminates the up-front mortgage insurance cost. Another option increases the interest rate and enables the lender to pay the mortgage insurance directly (lender paid mortgage insurance).  These options may allow the mortgage insurance payment to be tax deductible as well, though you are advised to speak with your tax advisor before making this determination.

Loans–Most programs allow the purchaser to borrow the money needed to purchase if the loan is secured against an asset. Some programs, such as VA, might even allow unsecured loans for this purpose.  The most common asset used for this purpose is a purchaser’s retirement account in cases in which the account allows the owner to borrow against the asset.  Additionally, if no payments are required on the loan, this adds another benefit because additional income may not be required for qualification in this special case.

Interested in purchasing a home with the minimum cash required? Contact us for more details regarding these alternatives.

Obtaining the Best Appraisal in Any Market

This has certainly been an interesting ten years for the housing markets. The prices of homes have been anything but stable during the past decade. Early in the decade they were increasing at a frenetic pace. We then saw a drop in home prices in most areas of the country and the drop was even more precipitous in those areas that experienced the largest increases earlier. In the past few years, home prices have started to recover as well.

No one has been affected more by this “housing valuation yo-yo” than the real estate appraiser. Sworn to identify the accurate value of a property to support mortgage loans that are secured by real estate, the appraiser has to deal with a variety of factors. These factors include all parties of the transaction having a vested interest in supporting the sales price–including the seller and purchaser. The factors also include trying to nail down the right data to support the sale which is increasingly difficult when values are changing rapidly, especially in markets where there are distressed sales. Finally, in the era of tighter financial regulations, agencies have made it more difficult for appraisers to communicate with the participants to obtain up-to-date information for fear that the appraiser will be subject to undue influence.

What does this mean? It means that if you want to obtain the most accurate appraisal of your property, you must be proactive in the process. Here are some tips to help you further your goals in this regard.

Be at the property with your real estate agent when the appraiser visits. Don’t just be there to greet them, be proactive during the inspection. Stay with the appraiser every step of the way and point out features that you feel are important — but don’t get in the way, especially when they are taking pictures. Make sure the appraiser does not miss anything of importance and that all areas are accessible (no locked doors). It is understood that as a homeowner you may not know what is important and what is not important. That distinction does not matter. It is up to the appraiser to decide and if you do not give them all the information, they can’t make a good decision.

Ask as many questions as you can. Does the appraiser have the right boundaries of the property and even the right boundaries of the neighborhood? Does the appraiser know distinctive information about your neighborhood that may make it more attractive, such as distance from schools and other amenities? If you have a recent survey of the property that would help.

You should have copies of other important documents ready to give to the appraiser. These might include the latest tax bill and copies of invoices for any major home improvements. While the cost of every improvement does not necessarily add the same amount to the value, knowing the cost will help the appraiser come up with the most accurate value for each improvement. Do not include routine fixes.

You should also describe anything unusual about the property — both negative and positive — but emphasize the positives. And make sure you get their business card so that you can follow with information and make sure that the person who compiles and signs the report is the same person who viewed the property.

The real estate agent should play a role in providing information. as well. A great determinant of the home’s value will be determined by the use of what is called “comparables.” Comparables are other properties that have sold that will determine the value of your property. If your next door neighbor sold his/her house for “x” dollars just a few weeks ago and their house is the same model, has the same improvements, is the same size and is in the same condition, you can see why this data would be important. On the other hand, even when everything seems to be the same, there can be differences. Perhaps your neighbor had to sell quickly because of a relocation and that means the price was discounted. With so many distressed sales out there, this fact could be very important.

Many times the information available on comparable sales are not accurate. Going back to your neighbor, perhaps you added an extra bedroom that they do not have, but it shows in the data as having that extra bedroom. Beyond the neighbor, this is why the real estate professional is so important. Your agent should know much about these comparables and should actually be suggesting the best comparables for your property.

When the appraisal does not come in at the agreed sales price, this does not mean that you should accept the value. The appraisal is the property of the lender and the purchaser. The lender must provide you with a copy of the document for review. It is important to make sure the value is accurate and the purchaser of the property has a vested interest in determining this as well.

Planning for a Successful Relocation

Relocating is always a stressful time for individuals and families. Change is always difficult and it is important to understand that planning can help minimize the stress and interruption of a geographic relocation. There is not one, but many choices you will face and the more educated you are regarding the options and more organized you can be in assessing the information, the smoother the transition will be.

The first goal of any relocation would be to align yourself with experts. Those helping you must not only be experts in their field, but they also should be experts at helping relocatees. Not everyone is equipped to help you from afar. It takes patience, anticipation, technology and knowledge to be qualified as an expert in this area.

Again, there are a multitude of decisions you will have to make which cover an even larger multitude of options. Here are just some of the questions you should be considering…

Will you be renting or purchasing in the new area? This is the most important question you will answer and the answer will in many ways affect the other questions and answers that you will face. Here are other questions which arise from the answer to this question. Within this article, we will assume your goal is to purchase; however, if you are renting some of the same concerns will apply.

  • Do you own a home in your present area and are you going to sell or rent that home?
  • Will you have eligibility for any special financing such as VA as a veteran or active military?
  • What is your time frame for purchasing? For example, perhaps you must sell your present home first.
  • Have you been fully approved by a lender for your new purchase? A pre-approval is defined as a review by a qualified underwriter, not a loan officer opinion letter. The lender will fully vet your cash assets, credit situation and income so you can narrow down your financial choices with regard to your new home. Nothing wastes more time than looking at houses for which you may not qualify. And a full pre-approval will give you negotiating power with regard to the home you will be trying to purchase.
  • Exactly where will you be working? You must assess what kind of housing is available in that immediate area. The proximity from your job to your home may affect everything from the cost of housing to the type of traffic you will face.

What kind of hours will you be working? This might affect whether or not you can rely on public transportation to get to and from work and how far from your job you should consider living.

What is your timeframe for moving? Are you moving quickly or planning ahead for a move sometime in the future? Of course, it always helps to have more time because this gives you more time to explore your options and make better decisions, but in today’s world, sometimes you can’t plan ahead with changes in jobs.

What type of housing do you prefer? Most buyers — especially those with families — would prefer a single family home with a yard. However, in some areas the cost of housing may preclude your first preference, unless you are willing to undertake a longer commute. All decisions come with trade-offs, but it is important to start with your ideals and work from there. Within your choice, there will be several sub-choices as well– from size of the lot to how many bedrooms you need for your family. Do you need a garage and how many cars should it be able to accommodate?

Do you have children, what ages are they and do any of them have special needs? Some school systems are better than others in general and certainly some are better at providing support for children with special needs. What other facilities are important–such as athletics or religious institutions?

Do you have time for a house hunting trip before you relocate? If so, how much time will you be able to allocate? This will allow you to meet with local professionals and your Realtor can plan your activities, including what homes you will be able to see in person as well as areas you can tour.

Do you have access to on-line video technology? This will help if your real estate professional has the ability to help you tour properties “remotely.” This is a great time-saving factor if you don’t have time for a visit or the visit more productive because you can narrow down choices.

Has your real estate and/or mortgage professional put together a relocation package? A package which covers information on the market area and conditions, schools, vendors and more will be very helpful in the planning process.

In general, we would like to quote an important adage–Success is not an Accident. The proper planning of a move will make all the difference in the world with regard to making the move more successful. Selecting the right professionals to help you will be the most important first step.