FHA To Go From 3.5 to 5% Down Payment?

Don Davis ph:360-652-9994 email:dond@htlnw.com

“The only thing constant is change”

-anon

 There could be no truer statement relating to the mortgage industry than that.  As consumers, it is impossible to keep up with the changes that have taken place in the last year and the next year to come.  It is almost a full time job for us in the business to keep up as rates change daily, lenders change their credit guidelines, lenders continue to go out of business, new appraisal rules, etc…etc…

 Now congress is considering changing FHA again.  Last fall they eliminated DPA’s (Down Payment Assistance) then they changed from a 3% buyer contribution to a 3.5% buyer down payment and now they are considering changing that to 5%. 

 According to the National Mortgage News;

 “Rep. Scott Garrett, R-N.J., said he has drafted a bill that would increase the FHA downpayment requirement to 5% from the current 3.5% level.”There are increasing reports of the likely necessity of a taxpayer bailout for the FHA and this legislation aims to implement reforms to try to prevent such a bailout from occurring,” Rep. Garrett said at a House Financial Services Committee hearing. The Garrett bill also calls for a General Accountability Office study to determine the appropriate leverage ratio for FHA. In the early 1990s, Congress mandated that FHA maintain a minimum 2% capital ratio. A recent audit shows that the federal insurance fund has fallen below the 2% minimum. But FHA officials say the insurance fund should be able to maintain a positive capital position and FHA will not need taxpayer assistance.” Source: National Mortgage News

 In the fore shadow of a teetering housing recovery, this could be a dagger to the entire real estate industry and all the trades depending on the housing recovery.  This will only make it harder for average Americans to afford a home of their own.  Landlords will be dancing in the streets and watch as your rents increase with reckless abandon.  In Snohomish county the average price of a home is just under $300,000 at the current 3.5% down payment that would mean you would need $10,500 down to buy a home with FHA.  The new rule would require you to come up with $15,000 for a down payment.  This begs the question “how will this help the economy to recover?”  While this is only at the bill submission stage, and not policy, it will be interesting to see what kind of opposition occurs and who opposes this terrible increase.  If this doesn’t happen, it would seem that the funding fee and monthly mortgage insurance premium would increase.

 The good news is that this hasn’t happened yet and if FHA is your loan of choice it is still 3.5% down at least for the near future.  Also if you are active military or a veteran of the military you still have the VA home loan option for zero down.  For the rest of you that don’t have this benefit there is the USDA/Rural home loan for moderate incomes to buy homes outside the metro areas that is also a zero down payment home loan.

 As always I welcome your questions and comments.  Fell free to contact me anytime.

Don

How Low Will or Can Housing Prices Go?

Don Davis Ph:360-652-9994 email:dond@htlnw.com

Is it the right time to buy? If I had a nickel for every time I’ve heard that in the last six months! Here is the reality of today’s market. While there may still be some volatility in certain local segments, it is very much a supply and demand. As long as the supply (inventory of homes on the market) remains high the prices will remain soft. That is the reality of today. However, once the inventory decreases to below a 3 month supply the prices will firm considerably. Even more important is when the inventory of existing homes falls below a 30 day supply. How long will that take? Well the short answer is; in a while. What drives a real estate market is employment. Employment affects population increases or decreases and thus controls the need for housing. If employment opportunities exist and continue to bring people in from outside this market then the need for housing will continue to grow. With that said, we are in a  stable employment climate here in the Puget Sound region with some areas stronger than others. This is what creates a housing market. If no one wants to live in a particular area, usually because of lack of employment opportunities, then the property values are low to very low. Conversely if there is a high demand for real estate then the values escalate. A local comparison would be comparing Everett to Omak. Compare the employment opportunities and you’ll see the correlation to housing costs. Once the market is deemed “desirable” then one needs to consider the value of the property itself, the dirt without a home. The value of the lot is the basis cost of what the property with the home will be valued at. An identical home built in Bellevue or Snohomish or Mount Vernon will essentially be the same cost for the structure, it is the cost of the lot that will affect the ultimate cost of the home. This is why a home in North Snohomish County is less than the exact same home in South Snohomish County. When appraised, every appraisal will compare like homes in a relatively close area.  Also on every appraisal is a “cost approach”. This is where the appraiser will determine the value of the land and dwelling and approach the total value using a price per square foot to determine what the home would be worth as if it needed to be built. So in this example let’s say that a 2300sf home would cost $75 per square foot to build. The dwelling itself would cost about $172,500. That includes materials and labor. Add to that the value of the land that it would sit on; let’s say $125,000 and you would have a value of $297,500. Of course the cost of the dwelling would be adjusted up or down depending on what type of materials we used to construct the home. In this example all we used was just an average. In addition to that there could also be “site improvements” this is where landscaping and outbuildings and such would be considered. If a home costs $75 per square foot to build, it doesn’t matter where that house is located, it will still cost $172,500 to build that house. The ultimate cost would be determined by how much the land cost to build the home. Using the above example and the fact that Washington State has a Growth Management act (GMA) where no county can overbuild based on population growth projections; it should be clear as to why this market has remained somewhat stable. Yes homes did appreciate too rapidly a few years ago. But if you bought a home prior to 2005 your home should be worth no less than it was in ’05 or ’06 even though it might have been worth more in ’07 and early’08. There is a finite amount of land available. King County is essentially out of buildable land. Most of South Snohomish County is used up. Add to that the fact that most building has come to a complete stop with very few permits issued in the last year and only a handful of new homes being built and you can see that once the inventory decreases what kind of impact that will have on the values. It comes back to supply and demand. Now, once again using the above example on what it costs to build or value a home, the cost to build the dwelling won’t go down by much even in these tougher economic times. Only the value of the land will adjust. The price of existing homes will almost always be less than that of a brand new home that is why appraisers use similar age homes with similar floor plans to do their comparables. What has decreased essentially with the price of a home is the value of the land it sits on and even in this market some homes actually still appreciate because of the value of the land (try getting a bargain on water front property on Mercer Island) if it can’t be duplicated and they aren’t making more land, then the value will remain as long as there is the stable population to support it. Bottom line; there is a pent up demand for homes in our local market. We have had over 1% population increase every year this decade and projections show that it will continue through 2025 (just look at the Snohomish County comprehensive plan) If builders are not currently applying for permits and most of the new construction is actually remaining inventory from last year, how long will it take to deplete the inventory of existing homes to where we are under a 3 month supply or less? It will take a while, but once reached the demand will do what demand does and start driving the home values back up. That is why now is a great time to buy a home. The market has remained stable for most of this year and we are actually approaching a four month inventory. It won’t take much to drop the inventory even lower. The builder’s banks aren’t lending money for new construction, and won’t be for at least the next couple of years.  And even then they will do it only after the market has fully recovered.  The interest rates for mortgages are still at or near record lows. So if you are looking to buy and live in a home for at least the next five years draw your own conclusion as to when you think the best time to buy is.

Below is a chart of homes sold in the four county Puget Sound region for the last 9 years.  We are at or above the statistical average for amount of homes sold per month!

2000 to 2009 break down of sales per month

  

 

 Above is the statistics from Northwest Multiple Listing for King, Pierce,Kitsap and Snohomish Counties. If you look at home sales over the last nine years, remember we came out of the last recession the first part of the decade, you can see where we are at compared to previous years. The statistics are compelling and as people become more comfortable with the emerging economy and taking advantage of the affordable prices and interest rates, I think you’ll find this to be a very appealing market, if you’re a buyer!

Questions? Comments? Feel free to contact me any time.

Don

$8,000 First Time Buyer Tax Credit

Don Davis Ph:360-652-9994 email:dond@htlnw.com

It is unclear at this point as to whether or not the Federal Government will extend the $8,000 first time buyer tax credit.  So as far as any of us are concerned we have to believe that it will come to an end on the 30^th of November 2009.

With that said, you should be mindful that if your home purchase is not completed by then you could be in jeopardy of not receiving it at all.  That really only leaves about a month and a half to find the home you want so it will close in time.  If you are purchasing FHA/VA or conventional it takes about 45 days to close a transaction from the time the Purchase/Sale agreement is mutually accepted.  If you are buying USDA/Rural add about another 30 days on top of that because the USDA/RD regional office is that backed up with applications.

The $8,000 tax credit is for first time buyers as defined by “if you have not owned a home in the last three (3) years.” It doesn’t matter how many you owned prior to that it is just the last three.

So, cowboy, if you ‘er a lookin to git that house ‘fore the deadline, git on yer horse and ride.  In other words you better “Git ‘er done.”

Feel free to contact me with any questions or comments.

Don

Don’t Let Your Mortgage Payment be Reported Late!

Don Davis Ph:360-652-9994 email:dond@htlnw.com

 I have had numerous calls since the demise of Taylor Bean Whitaker, mostly those that have been making payments on line.  The problem seems that the day they were shut down by HUD, they also shut down their computer systems and any employees left were just a mere skeleton crew.  HUD took over operations of TBW but I’m certain someone was unhappy by the sudden and rapid closure that they maybe did a little sabotaging of their computer systems.

 If you have a loan with TBW, I suggest that you mail your mortgage payment in as early in the month as you can.  Since it appears that the on line system isn’t working or back up yet, you will have to mail it.  Let me recommend that you send it certified mail with receipt of destination.  This is not the time to have someone screwing with your credit because they screwed up.  You want to make certain that your payment is received on time and that you have documented proof.  Who knows what standards that they have to provide for the mess that TBW is in and you should not be a victim of somebody else’s problem or inattention.

 I’m sure that in the next few week that there will be some kind of correspondence as to where and to whom you’ll be sending your mortgage payment to. In the meantime, mail it in certified or registered mail and protect yourself and your good credit!

 If you have any questions or concerns feel free to contact me.

Don

Death of a Lending Giant!

Don Davis ph:360-652-9994 email:dond@htlnw.com

As we enter August, lenders around the country were stunned, including me, when we heard the new that Taylor, Bean Whitaker had been shut down.  To the laymen, Taylor, Bean Whitaker (TBW) may not be a household name, but they are one of the largest independent mortgage lenders in the country,  they are the third largest FHA lender in the U.S. and overall 12^th largest in all total mortgage volume.

 FHA, HUD, suspended TBW and will no longer accept loans from TBW.  Ginnie Mae will take control of the company’s nearly $25 billion portfolio of its loans, HUD said.  For all intends and purposes TBW is finished and may never fund another loan.

 TBW was one of the last lenders to have the least stringent underwriting guidelines.  They were more lenient than most if not all lenders.  They were also one of the few that would loan on manufactured homes for VA, FHA and conventional financing as most other lenders left that segment of the market months if not years ago.

 The impact of this will have a HUGE a ripple effect.  First of all anyone who has been waiting for a TBW underwriter to look at their file will have to find somewhere else to place their loan application.  This is profound in this market because it will surely add to the cost of that loan or the ultimate denial. If the loan is doable elsewhere it will surely extend beyond the close date on the buy/sell contract.   Fortunately for me and my clients, I currently have no loans with TBW.  I do feel sorry for those that do as they will probably not get done at all.

 The existing volume and near future volume of loans that was going to TBW will now go to the other lenders that are still around.  TBW was approaching two months backlog in underwriting.  That is a huge number of loans that were waiting to be reviewed and cleared to close.  They now have to go somewhere else which will surely back up the other lenders that receive them.

 It will be even tougher now to get loans closed.  This is just another in a long list of lenders who have gone away and the ones that remain have less competition and will be looking for even stronger files to close.  If you don’t have a competent loan officer, this will spell disaster for you.  Loan professionals need to understand how to get loans done in this market.  If there is even a small issue with a file, it could cause it to be declined.  Credit issues are the number one reason lenders will turn a file down.  Not only will the scores need to be higher but past credit issues will have to be addressed.  Your mortgage professional needs to competent and clear how to help you address these issues.

 In a market where the government is spouting off about how they want to help home owners and home buyers, and get the housing market going again, they continue to make lending on a home more and more difficult.  The government continues to change FHA, VA and USDA guidelines.  They change appraisal guidelines. They change disclosures and add to the already confusing stack of documents you already have to sign.  They close down major lenders instead of finding ways to correct problems.  And as a result of TBW going down they will surely find new ways to complicate a fragile market.

 This is just another challenge we need to face and once again, with competent help from a mortgage professional, you can still take advantage of what is undoubtedly the best  Buyer’s Market in history.  Iif you have questions or concerns feel free to contact me.

 Don Davis

Guilty, Guilty, Guilty Until Proven Innocent!

Don Davis Ph:360-652-9994 email:dond@htlnw.com

 You are guilty until proven innocent is the way the credit reports work. It doesn’t matter if the account isn’t your and it doesn’t matter if you can even prove it. If it is on your report… it must be yours. It doesn’t matter if it is reported in error. It doesn’t matter if it isn’t yours. It doesn’t matter if you never missed a payment and it shows you have. If it is on the report…guilty! These are the kinds of errors that exist on credit reports today. Because it is on YOUR report means that it must be yours. This can be an account that is listed as yours but you don’t have what ever it is. For example, I have a client who has an account listed from Honda Finance. This is not his account. It belongs to some one else with the same name. They live in different states and have entirely different social security numbers. It is listed in error on my client’s credit report! I can supply documents that show this belongs to a different person, including phone number, address and everything that clearly shows this doesn’t belong to my client. But it is on the credit report and the lender takes that as the gospel truth, despite documents stating otherwise. Because of this it is preventing him from obtaining financing to buy a home.

Do you think the credit bureau cares? Do you think Honda Finance cares? No. In fact Honda customer service states that they have no mechanism to refute an erroneous entry. Yes they are the ones reporting to the credit bureau and no they don’t have any way to change it. I have personally spent hours on the phone with Honda to correct this problem and to no avail. They can verbally say that the account doesn’t belong to my client with the social security number I gave them, but they cannot put anything in writing! They suggest that we send a request to the credit bureau to correct the error.

Okay, here’s how that one goes. I supply the credit bureau the information to request that the erroneous account be removed. The credit bureau responds with “account verified”. This is because Honda Finance is the one supplying the information. The credit bureau’s computer sends Honda’s computer the challenge as well as the information that it is reporting. The Honda computer compares that with what they send to the credit bureau (how do you think the bureau got the info in the first place) and the account comes back “verified”. That is because it is the same, erroneous information.

So we contact Honda once again and explain that until they correct the information they are reporting, it won’t change the outcome. They say “we’re sorry, we can’t do that”!

A vicious circle

This is a system that is screwing with peoples lives. This particular client has been haunted for years, just because his name is the same as someone else. And it isn’t fixed yet.

As a mortgage professional I do have solutions. This is only available to mortgage lenders and not to the general public or to any other types of lenders. I can get a credit supplement or a rescore. All I have to provide is the documents proving that, in this case, the account belongs to someone else along with supporting documents and in three to seven business days the problem is cured. This is unlike what it would take you to fight this. In fact this same client had spent over two years clearing some other accounts that were listed on his report that were the other person’s accounts. It would have only taken me days. The key is that there needs to be proof that it belongs to someone else. Or in other instances that an account is being reported in error or that the account is paid off or there are no late payments. In virtually every instance, if I have documented proof, it can get remedied in a matter of days.

I have a very big distain for the credit reporting agencies. While everyone may think that their business is reporting, fairly and accurately, your credit history, in fact their main source of revenue comes from selling your information to marketers. Around 50% of their entire income source is generated from selling your information. This is where their time and energy is really spent, making money off of the information they collect about you.

So next time you think the credit bureau should care about you and a fair and accurate report about your credit history, think again.

Questions, comments? Let me know what you think!

Don Davis

dond@htlnw.com

360-652-9994 ext 1

Just A Reminder

Don Davis Ph:360-652-9994 email:dond@htlnw.com

I was going to repost this but didn’t really find it necessary.

 I just want to remind everyone that the clock is ticking on the $8000 tax credit the is set to expire (no one knows if it will be extended or not, why take the risk) November 30^th. 

What that really means is that in order to qualify to get the refund, amend your `08 taxes or wait until you do your `09, you need to have the loan closed.  To assure that will happen in time it really means that you have until the first part of October at the latest.  It is already end of June first of July and that will only leave a few months to take advantage of $8,000 free money.  Of course if you have no ambition to buy a home then this is meaningless.  But if your desire is to own, then you might want to get a move on, pardon the pun.

 If you have any questions or need any help, don’t hesitate to contact me.

 Don Davis

Credit Reports; Garbage In, Garbage Out

Don Davis email: dond@htlnw.com Ph: 360-652-9994

 It seems incredible that something that can control your financial future is   devoted primarily to an automated system.  But yet it seems that this is the way the credit reporting system is designed. 

Somewhere a clerk (data entry, typically not a high paying job) at the lender or creditor sets up your account and what gets reported to the credit bureaus.  Sounds simple enough?  They just make sure that your account is reported with the correct information and you would have to think that they double check things like the spelling of your name, social security number, address and so on…against the information you have listed in your credit report.  WRONG! 

Somewhere the credit bureau receives this information and surely someone would check it against what is on your credit report.  Things like the spelling of your name, address, social security number and so on…WRONG!

 Here’s the way it usually goes.  A clerk enters the information in to a data base that gets sent to the credit bureau.  Never mind that they spelled the name wrong or that it may not even be your account, it just goes in.  Next the credit bureau receives that information and compares it against other people with similar names, address and social security numbers (not necessarily all of those and not necessarily in that order). Sometimes if it seems close the credit bureaus computer puts it on your report.

This is what happens daily and why there are almost 80% of the credit reports with errors.  Almost 30% have errors serious enough to deny credit, even though the report is completely wrong.

Such is the case with Mr. John Spanger (changed the name for privacy reasons, but its close) John Spanger lives in Bothell, Washington and works in Redmond.  There just so happens to be another John Spanger who lives in Idaho (in a suburb outside of Boise).  The Idaho Spanger has a motorcycle loan and two credit cards that are listed on John Spanger of Bothell’s credit report.  Two years ago John Spanger of Bothell mailed and emailed the credit bureaus the errors and asked that they “investigate” and clear the Idaho Spanger items from his credit report. The bureaus send an account challenge to the creditor and the creditor compares what the bureau says and what they say.  Unfortunately the info the bureau has and sent the creditor is what the creditor sent the bureau, so guess what?  They match and the account stays the same.

In this real life instance, John Spanger of Bothell is trying to buy a home.  The motorcycle and credit card of John Spanger of Idaho are paid on time and the payments are not enough to substantially increase his debt load so the application is submitted simply with a letter of explanation stating that the motorcycle loan and the credit card aren’t his. But he has no proof.  The application is submitted, he finds a home and the file is sent to an underwriter to clear the loan and get it closed.  Even with the erroneous accounts there shouldn’t have been a problem.  But, alas, the snake came out of the grass and bit him.  John Spanger of Idaho missed a payment on his motor cycle that showed up when the underwriter pulled a credit report just prior to clearing the loan. (The underwriters do this to make sure that nothing has changed in the borrowers financial life that would add more debt or missed any payments that may lower a score).  The original credit report was clean without any late payments on any account.  5 weeks later the credit report had updated for the prior month and now shoed a 30 day late on the motorcycle.  LOAN DENIED.  

This file isn’t closed yet as this gets written.  We are fighting with the credit bureaus, creditor and underwriter to prove the account is not his.  we have provided each of them information provided by John Spanger of Idaho to help prove the account is not John Spanger of Bothell.  Incredibly the information provided is an entirely different social security number and since John Spanger of Bothell is in the Washington State National Guard we have also provided a history of where he was posted.  Of course the Washington National Guard doesn’t post personnel in Idaho and all the postings and residential addresses were entirely in central and western Washington State.  Was this good enough for the creditor and the bureaus? Not yet.  The challenge once again came back that the account belonged to John Spanger and it remained on both John Spanger’s credit reports.  We are however pretty certain that the underwriter now can see a clear picture and has the original contract from John Spanger in Idaho and it appears that the loan may actually close, albeit a couple of weeks late and an added cost to both the buyer and seller.

The moral of the story is; check your credit reports often.  Make certain absolutely everything on the report is yours.  If there are ANY ERRORS start working to get them corrected now.  Do not give up until the credit report reflects an actual image of what you have and the accounts are yours and yours alone.  If you wait or hope the errors go away, you may wait a very long time.  It can also cost you if any of the information can hurt your score or your chance to obtain credit or insurance or even a job.

 

Don Davis

Why It Is Impossible To Quote You The Interest Rate You’ll Really Get

Don Davis email: dond@htlnw.com Ph: 360-652-9994

I constantly get requests for rate quotes.  Here is the problem with rate quotes, it is fiction.  It does not matter what rates are today. In almost every instance you will never get today’s rates unless you are in the middle of financing your loan.  This means that if you are purchasing a home, you have all the paperwork filled out with the lender, and you have mutual acceptance on a purchase/sale agreement on the home you want.  If you are refinancing, you have filled out and signed all of the initial loan documents.

If you haven’t done any of that yet, you cannot lock a rate and will be offered the rate that is available at the time you have completed those things.

Mortgage interest rates change daily.  Sometimes several times a day and if I quote you a rate that is good right now, even a couple of hours later it might be lower or higher.

There are also several other factors that go in to what rate you might receive. What kind of loan are you getting? Is it conforming, conventional, FHA, VA or USDA?  What are your credit scores (lower scores means often higher rates)? How much are you putting down (lower LTV’s often mean better rates)? What is your Debt to Income (DTI)?  While you may be able to get a loan with a high DTI the rate may also be higher as well.

And then there are the ads you hear and read about. More times than not those are “teaser rates” (more like bait and switch).  If everyone is offering somewhere around 6% and there is this “special rate” at 5.%, there is some catch (if it seems too good to be true…).  It is usually a buy down rate that requires the interest to be pre-paid to get the lower rate.  This can be and usually is an expensive option.  It could also be (depending on the market) a ARM rate.  I’ve heard so may Ads say we have a “fixed rate” at 5%.  They didn’t say 30 yr fixed, just fixed.  With a 5year ARM the first five years are fixed.  So while it may be true that they have a 5% “fixed rate loan”, it is misleading and most people think it is a 30yr.

I can give you many more examples but I think you get the point.

The reality is, find a lender that you trust and have confidence in to help you get a good loan with a good rate.  With the volatility in the rate market changing daily, take your mortgage professional’s advice and lock at the rate that is good for you when you can.  But if you base your home loan shopping for who quotes you the best rate before it can ever be locked in, you are basing your most important financial decision on the wrong thing and you will surely be disappointed when you really can lock in your rate.

 

Don

The Credit Bureaus, Who is Their Customer, Really?

Don Davis www.htlnw.com 360-652-9994

 When it comes to the credit reporting agencies (CRA’s), Equifax, TransUnion and Experian, do you ever wonder how much they care about you and the information they carry about your entire financial life?

Well in reality they don’t care much, if at all.  You are really not their customer. You are profitable data. 

The creditors, lenders, collection agencies and those looking to buy their lists of your information are their customers, NOT you.  You are a commodity to the CRA’s whose main business, contrary to popular belief, is to sell your information.  One of the CRA’s makes almost half of its income from the sale of data lists.

You, in fact, are a cost to them not an income stream.  If you have issues with the information that the CRA’s use to determine your credit score and challenge the report(s), it costs them money to let you be heard.  There are laws that require your information be accurate (as much as 79% of all credit reports contain wrong information).  But enforcing those laws requires you to file suit if the information isn’t changed when you submit the challenging documents. 

A lot of people are surprised when they find out that the CRA’s are just companies that answer only to their shareholders to maintain profitability and a return on their investments not a government agency.  I dare say that nothing in their business plan has anything to do with making you a satisfied Equifax, TransUnion or Experian customer. And their “Customer Service” departments that service your requests are often outsourced somewhere over seas to further reduce costs (and increase your frustration).

So when it comes to your credit report and the CRA’s and their interest in you and doing the right thing by making certain that those three little numbers that determine your financial character is correct, do you think they really care?  After all a customer is someone who pays for a service and by paying for that service they can expect “customer service”.  So now do you still think you are their customer?

Don

Going Up?

Don Davis email: dond@htlnw.com Ph: 360-652-9994

  Those that have waited for the market to improve or think they were   waiting for the “bottom” to hit, it has and is probably past that, on the way up.   There are two things that you have to consider when looking for a home, one is the price and the other is the interest rate you’ll pay. Earlier this year is when the bottom hit. The prices stabilized early in 2009 and the interest rates were in the low 5 or high 4% range. This prices haven’t gone down since then, and in a few local neighborhoods they have actually improved. And now the interest rates are going up. Currently it is getting harder to lock a rate even in the high 5% range and it looks like soon we will be solidly in the 6% range. Now 6% or even 6.5% isn’t a bad rate, and historically it is on the low side. But if you take a look at what that ½ to 1 point difference makes on a $300,000 loan, it is significant. My advice is to ignore the news reports citing National statistics and markets out of our area and look at the data for your own county or even your own town. Locally housing inventories are down and remarkably there are even homes getting multiple offers again. Homes are and will be priced according to market and if the market continues to deplete the inventory then prices will reflect that and the “bargain” you were hoping for is gone forever. Now on to the rates. As the economy suffered bond yields reflected lower returns, since a lot of money was moving in to them. That meant lower interest rates for you. As the economy picks up steam and the stock market continues its uphill climb, band rates will go up and so will your interest rates. That is what has occurred over the past month or so and it looks like it will continue on that trend. My advise, lock, lock, lock your rates. If you have a FHA or VA home loan and you locked at a rate that is higher than what you could get later, there is a “streamline” rate/term refinance that allows you to inexpensively refinance and lower your rate. So you have protection with a simple and cheap refinance if rates ever do go back down. The experts are saying BUY NOW! Don

Things You Don’t Know About Credit Reports

Let me apologize first that this is longer than most of my postings, but I think you will find it informative.

Don Davis dond@htlnw.com Ph:360-652-9994

 Credit Reporting Agencies (CRA’s), Experian, Transunion and Equifax, will report whatever the creditor sends them.  In a recent article in SmartMoney (The Wall Street Journal), a spokesman for one of the agencies stated that ““We’re the library,” says Maxine Sweet, Experian’s director of public education. “We don’t write the book.”. 

But yet it is that very credit report that will determine whether or not you get a loan, whatever it is that you applied for, or not or the rates and terms, good or bad.  When you go to challenge the accuracy of the account listed on the report, the CRA’s do little, if anything, to investigate the account as to the validity and the accuracy. 

The scenario goes like this; you find an error on your report, perhaps it is an account that is reporting in error or in this example, not your account, you send a letter to the CRA and request that the account be “investigated” and updated to report accurate information or, if not yours, deleted.

The CRA receives the letter.  The CRA sends it to their “investigation” department.  (This almost makes me laugh because they outsource this part to reduce costs.  Equifax reduced its per-dispute cost from $4.50 to 50 cents by outsourcing the work to Costa Rica and the Philippines.)  the “investigator” takes your letter and reduces the comments to a two character code (in this example, ‘not my account” might be a G7 code) and emails it to the creditor. The creditor looks at the code explanation and name on the report, compares the name (Smith on the report, Smithe on their records) they maycompare it with what they report. If it is what they report, they send it back to the “investigator” as verified data and it remains on your credit record.  It doesn’t matter if you sent additional documents to the “investigator”  as those wouldn’t have been forwarded. And most of the time there would have been no further “investigation”.  Almost all of the time the creditor will simply “parrot” what the CRA states is being reported. 

What is even sadder is that most of the communication between the CRA and the creditor is all automated.  The CRA’s computer sends the creditors computer the information that it has on file. (this came from the creditor originally) the creditors computer campares this information with the information on file and bingo, it is a match.  The creditor’s computer sends back “information verified as accurate” and the report remains unchanged.

 Here is where the real problem lies.  It costs both the creditor and especially the CRA money to validate the data on your credit report.  The CRA is a publicly trades company responsible to it’s stockholders and to produce revenue (a profit).  The CRA makes money by charging the creditors to list your account every time it’s updated or to make any changes.  The CRA’s also make money by selling your information to whoever is willing to pay for the list. (who says you have any privacy and where do you think all that junk mail comes from).  This is a highly profitable segment of their business.  Publicly traded Equifax, founded in 1898 by a Tennessee grocer who sold his customers’ payment records to fellow shopkeepers, calls itself a “global leader in information solutions” with businesses as diverse as risk detection and database management. (According to its income statements, its consumer data unit remains its most profitable, boasting a 40 percent pretax profit margin.) Consumer data unit means the unit that sells your information.  By the way, you can stop this simply by going to http://www.optoutprescreen.com/ that will prevent them from selling your info.

The “credit reporting” end of their business is a gateway for collecting information, not their main profit center and verifying data on your credit report costs them money they don’t want to spend.

So why is all of this important to you?  Well if it isn’t obvious by now, all of your financial well being is in the hands of someone who doesn’t care about you or the accuracy of your information.  It doesn’t care what your score is nor what you pay for an interest rate or what terms you get.  On the other side, the lenders like the system because they can lay on their own credit guidelines like, if your score is under 680 you will pay a point more in interest than someone whose score is 680 or higher. That could mean as little a one point lower in your credit score, 679, could cost you a higher interest rate.  Take the type of loan and the length of time the loan is for and multiply the difference and you pay more.  Considering that the average score in the US is under 680 and the majority of consumers fall in to the lower range of scores, you can see why the lenders like it, because they make more in interest rates and fees.

 There are ways to get information deleted from your credit report.  NO, not by using a “credit repair company”.  Most of them are illegal and the vast majority of the time you pay up front for services yet to be rendered and receive nothing for it.  The FTC strictly forbids companies from charging for services that they haven’t performed yet, thus rendering them illegal.  If you have the money, a bona fide attorney who specializes in credit law is a reliable source.  It can get expensive depending on the amount of accounts that you have to challenge.  However if the CRA receives a real challenge letter from a real attorney chances are they will treat it as “VIP” and it will have a much higher success rate of deletion. For those of your, including me, that can’t spend the money on an attorney, the next best way is to challenge it yourself.  By law, the Fair Credit Reporting Act (FCRA) requires that information challenged on your report be “investigated” and either verified, updated or deleted within 30 days of receipt of the challenge.  Send your challenge documents to all three CRA’s certified mail, return receipt requested and the clock starts.  Do not use a form letter that you found on the Internet that looks like every other letter (click here for a sample letter).

 This is where the work starts.  It does not matter whether or not the information on your report is true or not.  The vast majority of accounts cannot be verified in the time allotted.  Again according to SmartMoney (The Wall Street journal) “One TransUnion manager testified that workers were expected to complete up to 22 cases an hour. An Equifax worker estimated she was allotted four minutes per dispute. To process the letters so rapidly, the workers summarize every complaint with a two-digit code selected from a menu of 26 options. The code “A3,” for example, stands for “belongs to another individual with a similar name.” The worker can also add a single line of commentary. The two-digit code and short comment is the only information the lender receives about the dispute.”

Document everything.  Keep all correspondence and receipts.  These are your weapons in this battle.  Chances are the first letter will not get results and you’ll need to send a second.  The second needs to do more that restate the first or it will be dismissed as “frivolous”. The best document, weapon, is if the account is an error and you can get a letter from the lender or creditor stating that.  It would need to be on their letterhead along with their contact information, phone number, address, account number and names.

 Personally I hate this system.  It is voluntary for the lenders or creditors to participate.  Rarely are they or the CRA’s held accountable for the validity of the information contained in a report that summarizes your character.  Gone are the days of sitting face to face with a loan officer who will listen to your side and make intelligent decisions based on facts.  In the mid 1990’s the software was developed and those three little numbers soon became the basis for rates and terms and whether you were granted credit or not. If you don’t have the score, you don’t get the loan. Furthermore this is a system that you never asked for or were requested to participate in. They collect your information (right or wrong) and sell it so they can profit.  And if there is incorrect information, you’ll never be able to talk to a human to help you correct it.

 Protect yourself and follow these simple tips;

• Keep all your account statements for at least two years
• Keep all paid off statements for at least two years
• Keep all correspondence and documents for at least two years
• Check your credit report at least every for months http://www.annualcreditreport.com/allows for you to obtain one free report from each CRA every year so once every four months get one from one of them, four months later get one from another and so on. This way you can monitor the accuracy of what is listed.
• If you have your ID stolen or even suspect anyone is using your ID, put a “freeze” on your report.  If you are a ID theft victim get a police report. (the police don’t want to take the time, but make them do it)
• If you have had past credit problems, even bankruptcy, repossession and foreclosures, reestablish credit NOW.  Even if it is a secured credit card it will start building positive accounts and start offsetting the negative information.
• Go to http://www.optoutprescreen.com/ and keep them from selling you.
• Challenge anything and everything negative on your credit report.  Remember this is a voluntary system that you didn’t volunteer to participate in it.  This is a reflection of your character and decisions will be made for what is in that report regarding any loan you will ever apply for, your insurance rates, credit cards and yes even employment opportunities.  The system is flawed and it is up to you to protect yourself, nobody else will care.
• Don’t be a credit score victim.  If you don’t care about the rates you pay, you wouldn’t have read this far.  It may take a while but be persistent and get your scores elevated and maintained in the 700 range.
• Use only the credit you need.  You should have no more than three to five credit cards and you should be able to pay them off within a month or two.  The credit card companies know that if you can’t pay it off in two months you couldn’t afford it and they got you.  The cards are for managing your scores not for acquiring debt.
• Contact me if you have any questions or concerns.  If you live outside of the Puget Sound are I can help you find local help.  If you live around here I’ll help you.

 

Don Davis

Credit Question For Don

Dear Don,

We had a bankruptcy about 9 years ago, ( we both came out of other marriages with financial disaster spouses) and since that time my husband has pretty much paid cash, and “does not have enough credit activity to get a score.” I have re-established pretty good credit. We currently live in a 55 Senior Mobile Home Park in a manufactured home.  We would really like to own our own home.  I cannot believe in this day and age we would be punished for living within our means for the past 9 years and not having a bunch of credit debt! We even have money for a down payment. Anyway, if you think there are some programs and you can help, please help us. Thanks.

James & Gayle

 

Hi James and Gayle,

Don Davis

No you shouldn’t get punished for living within your means and not “racking up a bunch of debt”.  However, in order for the credit report to show a score you do need to have active credit to register for the system.  Now this does not mean taking on debt.  it means you manage your credit and thus managing your score.  Having a credit card or two doesn’t mean you have to have a balance on them.  All you need to do is once every other month put a $5. charge on the card and pay it off at or before the statement.  You have credit and no debt! I will contact you to discuss some strategy for positioning you to get a home loan at today’s great rates and terms.

Don

Here’s The Low Down on No Down Home Loans

Don Davis

In an effort to help people better understand USDA/Rural home loans, here is a brief break down.

USDA/Rural is one of only two true zero down loans on the market.  The other is a VA home loan.

USDA guaranteed home loan financing is a government guaranteed (not insured) home loan. This means that there is no monthly mortgage insurance to drive up your payments.

 There are several restrictions to the program however.

1. Location. For a map click on this link: USDA property eligibility map.  Click on accept and then click on your state and area that you are considering buying in. the dark yellow areas are ineligible and the lighter yellow areas are eligible.  In the Puget Sound area for example, King County, areas like Duvall, Carnation, Fall City, Snoqualmie etc all qualify. In Snohomish County from the King County line north, everything EAST of highway 9 is eligible up to 140^th in Marysville, and then everything west north and east is also. In Skagit County all areas except Mt Vernon City limits area is eligible.  About half of Pierce and Thurston counties qualify.  Refer to the map if you are considering any area of the State of Washington.

This leaves a lot of options to find a home and still have quick access to the cities.  Over half of the county areas surrounding Puget Sound qualify.  And, of course, this is where any new housing is going to get built as the urban areas are essentially built out.

1. Income limits.  This program is designed for middle income households.  So there will be income restrictions.  Most of our Puget Sound area limit families of four or less to a maximum monthly adjusted income of under $7500 per month and families of 5 or over to about $10,000 per month.  There are adjustments that can be made for children under 18, child care, elderly living in the home and other adjustments to help bring the income in to qualification range.
2. 620 minimum credit score.  Of your three credit scores, Equifax, TransUnion and Experian, two of the three need to be over 620.  Your past credit history (collections, charge offs, bankruptcies, repossessions and so forth) is of little concern. If your score is below the 620, we can help show you how to increase your score in a fairly short period of time.  It is usually lack of current, positive credit that is keeping your score down vs. anything in your past that is older than 2 years ago.

 

Those are really the only restrictions. There is no restriction on the price of the home as you will only be able to qualify, based on income, for what will work for you. Keep in mind that you will be limited to about 41% of your gross, pre-tax, income, including all other reported debt (car payments, credit cards etc…) for your combined debt ratio including your house payment.  So if your household income is $5000 per month you’ll be limited to about $2,100 in combined debt.  

 

As far as any other qualifications, it would be about the same as any other home loan.

 

So essentially to get a USDA ZERO Down home loan, you can’t make too much money and would buy in a non-metro area.

 

We would be happy to help you understand your options and help you make this opportunity work for you.  Just give us a call at 360-652-9994 or email me at dond@htlnw.com.

 

Don

The Clock Is Ticking

Don Davis www.htlnw.com 360-652-9994

 Time is ticking away on the $8,000 tax credit (rebate) for home buyers.  While December 1^st seems like a long way away, remember that the loan needs to be closed by December 1^st so that you can qualify for a free $8,000.

 Right now if you made and offer on a home it would be June at the earliest and most likely July before the sale would close.  If you were to close by the 1^st of December then your offer would need to be made by about the middle of October.  That is really only about a four month window left to take advantage of this government tax credit program.  There is currently no talk about any extension of the tax credit, so this will probably be it.

 If you are even thinking about buying a home in time to take advantage of the tax credit, let me suggest that you get on it soon or it could be gone forever and $8,000 will be money that you don’t get. 

 This $8,000 is for “first time” home buyers.  By definition, all you need is to NOT have owned a home in the past three years to qualify.  So even if you owned other homes prior to that, you can still qualify for the tax credit.

 There are no strings attached to the money either.  You can amend your ‘08 tax returns and get the money soon or wait until you file your ‘09 returns and get your money early next year.  You can use the $8,000 any way you want! If you borrowed against your 401K or IRA you can use it to pay it back.  You can buy new furniture, lawn mower, surround sound, or put it away for your emergency fund. (Not a bad idea)

 So if you’re interested in getting your $8,000 you might consider getting the ball rolling soon.

 We can help you get pre-approved for financing so you know how much home you can qualify to buy.  Just give us a call at 360-652-9994 and we’ll do our best to help you get your dream home and your $8,000.

 Don

Why Doesn’t My Bank Have These Loans

Don Davis

 

Don Davis 360-652-9994 www.htlnw.com

I do a lot of posting on Craigslist to promote current loan programs to help you take advantage of the Buyers market.

 What is interesting is that I get a lot of comments that people hope this isn’t a scam.  Or they are skeptical as to how I can offer a home loan that their own bank or credit union doesn’t.  I can only imagine what some people do in this world to try to get people to part with their money. And one of the biggest fears is that we’re offering “sub-prime” home loans.

 Well we don’t have any “sub-prime” home loans, and I’m not even sure if any of those lenders or loans are even still available.  Our interest is to make sure you have the best home loan to fit your needs. We also don’t charge any up front fees to submit loans.  If we can’t get someone financed, we don’t get paid a dime.  We feel that if we earn some ones business, then we have earned a living. So our goal is a mutual one and that is get the loan funded.

 Our residential “niche” if you will, is government home loans.  I know why some people are skeptical and one reason is that most banks and credit unions don’t offer the full array of government home loans.  I can name a bunch of them here in Snohomish and King Counties that only offer conventional home financing.  That means you need a substantial down payment and better than excellent credit scores. 

To do government backed home loans the lending institution needs to be properly licensed and have the proper endorsements.  We have those.

 Government home loans however, aren’t nearly as stringent.  FHA home loans only require a 3.5% down payment. That money can come from virtually any source except the seller. You can use your own money, you can borrow it from a 401K or IRA, a relative can gift you the money, and there are employers and local government entities that can help as well. FHA has an up front funding fee (mortgage insurance) and a monthly mortgage insurance premium added to your mortgage payments.  This is a very viable home loan program and is geared toward first time home buyers or people that will only own one home. Also your credit does not need to be perfect.  In fact even if you have had a bankruptcy, if older than two years, and credit scores over 620 you can still obtain FHA financing.

 VA is the second government loan we offer.  This is for active duty and veterans of all branches of the armed forces including the Coast Guard and National Guard as well as selected Dept of Defense civilian employees.  This is a VA guaranteed, true zero down payment home loan and requires a 2 to 2.5% up front funding fee that can be financed in the loan.  The seller can contribute up to 4% toward closing costs and an additional 4% toward helping the borrower pay off other debts. (I’ll get in to this more in a future posting).  This means that someone who is VA eligible can buy a home without any money out of their pocket. Once again perfect credit is not necessary, two years past bankruptcy and credit scores over 620 and you should be able to access this program

 The third is a USDA/RDH home loan.  This loan used to be through FHA but is now administered through the USDA.  It is designed for less populated areas of the country.  In Washington State for example, every county in the state has areas that qualify for this loan program.  It just needs to be outside of the metro areas.  Depending on the county it could be all, most or some areas of the county that qualify.  The RDH guaranteed home loan is a true zero down payment home loan with a 2% funding fee that can also be financed.  The RDH also allows the seller to pay up to 6% toward the buyers closing costs allowing for a home loan that you can buy a home with absolutely no money out of your pocket.  Other than the area available, there is also income limits designed for moderate and lower incomes.  As with the loans above, perfect credit isn’t necessary.  In fact with the RDH one year out of bankruptcy is all you need with credit scores over 620.  I’ll also get in to more detail in a future posting.

While we can also do conventional home loans, most people today need the flexibility that these government home loans can provide.

 I would be more than happy to explore these as well as any other financing options that apply to help you get the most bang for your buck.  Feel free to contact me at 360-652-9994 or email me at dond@htlnw.com and for more information about these loan programs and a lot of other info go to my website at www.htlnw.com

 Don Davis

You Said You Wanted Lower Interest Rates!

Don Davis www.htlnw.com Ph:360-652-9994

If lower rates are what you’ve been waiting for, wait no more! 

At least for now interest rates for mortgages are as low or the lowest they have been all year, thanks to the stock market waffling.  This is because as the stock market slows, investors move their money to more secure, less risky investments to preserve their capital.  And they move it to the bond market.  As bonds rally, rates decrease (supply and demand) and mortgage rates go down.

 

Currently as of today it is possible to get a 30 year fixed rate mortgage in the 4% range!  If you have been waiting for rates to go down to make a decision to buy, then this is your time.  Home prices are stable and the housing market is starting to heat up. Inventories are decreasing so that means that demand is increasing and supply is decreasing.  It probably won’t be long now before we see some modest improvement in the appreciation in home values locally.

 

As with any market there are ebbs and flows.  Through this century we have seem many times where the housing market has rallied and many time that it has fallen only to once again go back up. 

 

This is a magic time for those who want to own a home of their own.  With the prices of homes where they are and the rates as low as they are, there may never, ever be a time again that housing is more affordable than it is right now.  All it takes is studying the local data for you to evaluate whether or not this is the right time for you.  If it is, now is the time to make your move.

 

As always feel free to comment on this post or email me with your thoughts.

 

Don Davis

dond@htlnw.com

360-652-9994

The Times They Are A Changin’

Don Davis www.htlnw.com

 The housing market, locally, is heating up.  I emphasis locally because what happens in other parts of the country to their real estate markets has nothing to do with ours.  If theirs, like Florida or California or Arizona goes up or down, it has absolutely nothing to do with our market.  What drives a local housing market are the local economy and the local employment. If employment is stable and the population increases, then that puts upward stress on the local housing market.

 

That is what we are once again starting to experience, locally.

Here are a few statistics from the NorthWest Multiple Listing Service (MLS)

 

April of 2009 saw an overall 23% increase of pending sales over April ’08 for single family and condos.

Single family alone saw a 28% increase in pending sales. 28%!

 

Single family and condos realized 1,111 pending sales in April with 5,592 total active listings.  That puts the inventory under 5 months supply.  In single family (stand alone houses) there were 934 pending sales with 4,500 total listings.  That would make about a 4.7 month inventory.  April of ’08 there was almost 8 months inventory.

 

In addition to that local economist Bill Conerly believes the worst is over.  Businesses have already cut back on inventory and ordering.  Most of them have long ago trimmed payrolls and adjusted to the current economy. Even more telling is that population continues to grow in areas around the Metro areas by as much as 25% in the last eight years.  That puts a huge upward strain on the housing market.  The more people, the more housing we will need. He also sites that the stock market has past its bottom and is more stable and consumer confidence is increasing.

 

When you step back and take a look at the available LOCAL data you find several things.  One is that most employers are past the critical stage and you should start feeling more comfortable in your current job.  The employment prospects will increase for those displaced.

 

If you are thinking about selling your home, you might consider waiting a few more months as prices firm up a little more and possibly even start to increase based on demand.  If you are considering buying a home, this may be your best chance, ever.  Interest rates are at or near historic lows and prices of homes are not predicted to suffer any more major declines, locally.  Your purchasing power is as good as it gets.  If you wait until the local market recovers completely then you will pay more for the house, possibly pay a higher interest rate or both.  The old saying goes; “Buy Low and Sell High” look at the statistics and tell me where you think we are right now.

 

Your comments are always welcome.

Email me at dond@htlnw.com

 

Don

Your Credit Score

Don Davis www.htlnw.com

 

If your credit score is under 720 you will pay a higher rate.  If it under 660 it will be higher yet and if your score is under 620 you will be just plain hard to get a loan.

 

About seven months ago FHA/VA tried to risk base their loans but were thwarted at the time.  Fannie and Freddie have had a similar system in place for almost a year.  That’s one of the reasons why fewer conventional loans are done today.

 

If you are thinking about financing or refinancing a home, you need to start working on getting your scores increased now.  This is not something that can or will be easy to fix quickly in many cases. 

 

The first thing you need to do is to obtain a copy of your credit report and make sure that everything on that report is yours.  You also need to understand what, in your report, matters to your score and what doesn’t.  If you need help just call and we can explain the factors that control your score.

 

The one thing that usually get most people is the balances carried on revolving credit (credit cards and lines of credit)  this accounts for 30% of your score (600 X 30% = 180 points.  That could be the difference between a 600 score and a 780 score)  this is a huge deal and something that you need to get control of, otherwise you will not only pay more for a mortgage, but it will cost you higher rates on credit card, car and truck loans, RV loans, insurance premiums, installment loans, anything that depends on your credit score.  If you have absolutely no revolving accounts, you will need one or two.  It is not to have debt; it is a tool to manage your credit scores.  You don’t need a balance on a credit card, just a $5 charge once every other month will keep the card active and updating on your report.

 

Look, this is clearly a choice you are going to have to start making.  Either get control of your finances and your credit scores and get the better rates and terms, or not. If you don’t, you have no one to blame but yourself.  You do not have to be a victim of the credit reports.  If you have never paid a bill on time and have no intention, you will get what you have gotten.  On the other hand, if you have had a rough patch and need to get back on track, just give us a call and we’ll help you through it. It’s your choice, but don’t say we didn’t tell you so.

Don

It Is Official! New Income Limits For USDA/Rural Home Loans

Don Davis

April 20th 2009 and the income limits for USDA/Rural RDH Home loans has been updated and raised.

The new income limits are substantially higher for people looking to buy a home with no money down.

In Snohomish County the income limits are $7,666 per month (adjusted) for one to four person households and $10,120 per month for five to eight person households.

This means you can make up to these limits and can buy a home in the geographical areas that qualify for the RDH program.  

This is an excellent opportunity for people to take advantage of the current market conditions and get a real bargain and very low interest rates! 

The RDH is a true ZERO down payment program that is guaranteed by the government and does not have mortgage insurance.  These are 30 years fixed rate home loans that are probably one of the best home loans on the market today.

For more information and to see if you qualify, feel free to contact us at 360-652-9994 or visit www.htlnw.com

Don