Buying a Home? Why the FHA Loan is No Longer the Low Down Payment Loan of Choice

This the second article in a series discussing the ins and outs of the best mortgage loan products available for home buyers. Last week, the USDA Rural Housing Loan was featured.

The FHA loan was once a very popular and useful loan for helping first time home buyers achieve their dreams of home ownership. “Was” is the key word though because this loan is no longer the loan of choice for most home buyers.

First let me explain why the FHA loan has become the dinosaur of mortgage loans, and then I will explain what is the new best loan with a low down payment that can be obtained anywhere, regardless of whether it is in the City limits or not (see last week’s article about USDA loans).

Due to substantial losses taken during the economic recession and housing crisis, the FHA (Federal Housing Administration) had to increase its revenues to keep operating and attempt to avoid a taxpayer bailout. FHA makes its money by insuring loans which in turn allows mortgage lenders to grant loans over 80% loan to value. In short, the FHA (backed by the U.S. Government) stands behind the loan, allowing lenders to loan home buyers up to 96.5% of the cost of the house. Without this guaranty, lenders will not loan more than 80% of the cost of a home, eliminating many potential home owners from being able to buy. After all, how many buyers have an extra $40,000 to put down on that $200,000 house?

For its most popular loan, the 3.50% down 30 year fixed rate mortgage, FHA now charges 1.75% up-front Mortgage Insurance (MI) and an additional 1.35% annual MI based on the outstanding loan balance. This annual MI expense used to drop off after the loan reached around 78% loan to value and home owners could request its removal after only 5 years.

However now, FHA borrowers must pay this MI for the full 30 years of their loans even when the loan to value is less than 50%, even when it is less than 10%. On a $200,000 house the cost of the up-front MI would be $3,377.50 and the beginning monthly MI cost is $215.46 or $2,585 in just the first year.

The FHA loan was designed with a noble cause in mind: to make home ownership more affordable. Yet now when compared side by side against the USDA Rural Housing Loan and the Conventional Loan with 3% Down, FHA is the most expensive loan option available.

There are a few scenarios where it does make sense to get an FHA loan:

If the buyer has had a bankruptcy and/or foreclosure within the past 7 years. Conventional financing requires a 7 year period to have passed, but FHA’s waiting period is only 3 years. I recently closed a loan where FHA granted an exception and allowed the loan to be made less than 3 years from the foreclosure date (but greater than two years) due to extenuating circumstances.

Manufactured Home Loans. The only mortgage loan product I have available for a manufactured home is an FHA Loan Product. This is a lower cost loan than other financing for manufactured homes through finance companies.

Refinancing? FHA offers some higher cash out refinance options than conventional loans and also FHA has a Streamline refinance where the home owner can get the benefit of a lower rate without having to have an appraisal completed on the house. This is very useful for those who home value is under water.

If you cannot qualify for a USDA Rural Housing loan due to income or property location eligibility reasons and want a low down payment loan, the Conventional Loan with 3% down is a better and lower cost option than the FHA loan. I’ll feature this product in my next post.

You are welcome to email specific questions to me at mtarleton@englending.com, call me at 850-866-2963, and also visit my website at www.bankofengland.us.

Mike Tarleton
Sr. Mortgage Loan Officer
Bank of England
850-866-2963 (Cell)
706-888-0980 (Cell / Text)

NMLS: 264821

Buying A New Home? Which Mortgage Loan is the Best?

Are you in the market to buy a house? What kind of mortgage loan do you want? The best loan with the lowest rate of course. That is an easy answer. What is not so easy is determining the ins and outs of the various products available. It all depends on several things:

How much are you paying for your home?
What down payment are you able and willing to make?
Where is your home located? Certain products have geographical restrictions like the USDA Rural Housing loan.
Do you have VA loan eligibility?
Are you buying a home that will need a Jumbo loan?
Are you buying a stick-built or manufactured home?

There are so many variables and loan products, each with its own pros and cons that it quickly becomes a mind boggling process. Over the next few weeks I will feature a different mortgage loan product and discuss the ins and outs of each. You are welcome to email specific questions to me at mtarleton@englending.com and also visit my website at www.bankofengland.us.

This week’s featured mortgage is the:

USDA Rural Housing Loan

The Good:

This loan offers 100% financing for qualified buyers.
It is a government backed loan which means the interest rates are normally lower than conventional loans.
This loan is geared towards borrowers with low to moderate income levels.
This loan is a lower cost loan when compared side by side with the FHA loan.

The Bad:

The property you are buying must be located in an area deemed eligible by USDA and they did not create this program for city slickers. If you are buying in Bay County there is a good chance the house is eligible. Areas which are eligible are typically located outside the city limits, but you can find a link to the eligibility maps here: http://www.bankofengland.us/loanOptions/Featured/RHS%20Loan%20Program/
USDA also has a maximum income limitation to qualify. It’s not just your income but the income of everyone that resides in your household whether they are on the loan or not (even the teenage part-time worker). The link posted above will take you to a page that you can input your information to see if you are eligible based on your income and household information.
The loan has to be underwritten twice, once by the lender which is usually a 3-4 week process, and then again by the Statewide USDA office. Currently the Florida USDA office in Gainesville is telling lenders to expect 30-40 days for files to be underwritten. That makes the total process start to finish around 60-70 days.
Does the house you are buying have a pool? If so, USDA will not finance any value to be given to the pool. It’s not that a USDA cannot be made if there is a pool but the house must appraise on its own merit with no value given to the pool.

The Ugly:

Since I moved to PCB, I have run across several service members that were made USDA loans rather than VA loans and are now trying to refinance to lower their rates. Had these people taken out VA loans rather than USDA loans when they bought their houses years ago they would now be much better off because they could refinance them more easily. I’ve seen people with higher rate USDA loans not be able to refinance to lower their rates for a variety of reasons such as (1) they are now making too much money and are over the income limitation threshold, (2) they no longer live in the house (military tend to move every few years), (3) they have married and the household income is too high and over the threshold limit, etc… However, this should not scare anyone from getting a USDA loan now. There is not much likelihood that rates will ever be this loan again and especially.

One important thing to consider is that while the USDA loan does offer 100% financing, it does not provide financing for closing costs and pre-paid items like insurance and property taxes.

Despite a few items to consider, the USDA loan is still a great loan, especially if you want no down payment. It is a much better and less costly loan than the FHA loan. USDA charges an up-front Funding Fee of 2% which is financed into your loan and also charges 0.40% that is paid monthly included in your payment amount. Compare with FHA’s monthly mortgage insurance cost of 1.35% this is definitely the way to go if you and the house you are buying meet the qualifications.

Mike Tarleton
Sr. Mortgage Loan Officer
Bank of England
850-866-2963 (Cell)
706-888-0980 (Cell / Text)

NMLS: 264821

Picking up trash and in Praise of Tele-marketers

I have been toying with this idea for quite some time. The notion has been stuck in my head but mostly my heart, the thought of BECAUSE I CAN… not sure really why it keeps coming up but for at least 7 years it has been brought to my attention that I need to do something with this. I know there is so much talk about what we can not do but really there is always so much more we CAN do.

One of my earliest memories of the term, Because I can came up when a favorite Pastor of mine, Ronald Ball then with Woodlawn church would tease me about my working out. He would jokingly say, “I just do not understand why you want to run when no one is chasing you?” I think I would just say, Because I can. A few years ago a dear amazing friend Gabe had cancer and each time I would run while he could not I would think as I took those Grateful steps…. I will run for Gabe, Because I can.

I even shared with my friend Angie years ago that I felt I was being called to do something with these 3 words, Because I can. I have tried to run from it but it keeps meeting me at every corner and even though I am not quite sure what I am supposed to do I will just go ahead and do what I can… Because I can.

I was walking on the beach the other day, one of my most glorious,most reverent and thankful of things to do. While walking and jogging and humming to my happy tunes I sadly noticed all the Spring Break trash piled up along my pretty beach. My first thought was to be aggravated that people would do such a thing and garner a self-righteous stance. I quickly turned about and thought that instead of being angry or aggravated why not say a sweet prayer for the givers of the trash. Why not ask God to bless them and keep them safe while they are here and make their life a nice one. I also hoped that they may think next time but until they do I will gratefully say a prayer and pick up the trash…. Because I can.

As I was merrily cleaning the beach, I remember that Charlie Lahan for years could be seen up and down Laguna Beach picking up trash to make our beaches beautiful for the next round of folks. I also started thinking of those tele-marketers that will be calling the house soon and how for whatever reason I always have a soft spot for them. I always tell them that I am not in need of their product but I bet someone else may be and that I pray they have great success. I imagine that they have my name and they call me for training to raise their self-esteem. I will continue to be kind to them so in some small way I may make a difference in their day…. Because I can.

Still not sure where I am going with this but I suspect if I do what I can with what I have from where I am it will be revealed to me. I know that I have many people who I have watched do the Next right thing in life and all the people they have left better off by their journey. I know that I want to make a difference so perhaps Because I can can be the mantra of myself and others as we celebrate all of us even those that leave behind trash and tele marketers.

Play Purdy!!! Multliple offers

I just love this job!!! Every day it is new and exciting and different and just when you think you have it figured out …. here we go again. One day our buyers are just strolling along and taking their time to figure out just which of the many houses they want and with the blink of the eye it has changed. Although it is NOT a total sellers market yet, we are inching closer and closer as inventory is going down and the multiple offers are CRANKING up. So what is one to do when you are faced with multiple offers.

Play Purdy!!!! (southern for Play Pretty)

My grandmother alway hollered after us as we went out to play,” Play Purdy now!!” Of course that was her way of reminding us to play nice and that is great advice when making an offer on a home that you really want. To make your offer more attractive, don’t ask for closing cost and other extras from the seller. If you do need to ask for closing cost assistance then up your offer to cover those expenses. It is also a great idea for your agent to be really sweet to the listing agent because emotions do play into our engagement with others… whether on a subconscious or conscious level.

Hot buttons!!!

More than likely the seller has some hot buttons, some things that just may tilt the sale in your favor. Maybe you find out that they would love a quick close or maybe they need to even stay a few days after close…. if you can find out what makes them tick you may have a good chance of having the winning offer.

Share that loving feeling…. oh that loving feeling.

Most home owners love their home and have an emotional attachment and the notion that someone else will love and enjoy it too makes them feel good about the sale of their home. I have actually had people write a letter to the seller’s expressing how they felt about the home and what it meant to their family. On a personal level I just purchased a new home and I believe that the seller who really did not want to leave the beach, ( and who would?) felt a sense of comfort because of my over the top enthusiasm for her home that thankfully is now mine.

As we continue to move towards more of a Seller’s market I will share some more tips next week…. but for now remember, “The only people we have to get even with are those that have helped us.” And until I see you again, “Play Purdy”

Times they are a changing!!! Return to a Sellers market

Existing-home sales inched up again during January, according to a recent report by the National Association of REALTORS (NAR). Existing-home sales, which include recently purchased single family, townhomes, condominiums, and co-ops are on pace to reach 4.92 million annual units, up 9.1 percent compared to January of last year.

Hearing the words Seller’s market can create quite a stir so most of us are cautious of uttering those melodious words that sellers have been longing for. The market has changed quite markedly in the last year and even more so in the last 6 months. What was once clearly a Blue Light special for Real Estate has taken a turn. No longer can a buyer do some of the things they have done for the past 5 or more years due to a drastic reduction in inventory.

Some of the habits of buyers may not work to their advantage anymore so I thought we could address a few of buyer practices. The first one is those good ole low ball offers. There was once a time when the seller was so anxious about selling and competing with the short sales and foreclosures that they would bite their lips and counter those low ball offers. In the past few months I have seen many a seller just not even address the offer. The danger for the buyer is that once you give a disrespectful way below market offer the seller does not take you serious and worst yet while the buyer is angling for a steal of a deal …. a more sincere buyer waltzes in and snags the home.

When the market was flourishing with inventory buyers would have plenty of time to sleep on it and even sleep on it for days, weeks and even months. Thankfully those days are gone because while you are sleeping, someone else is packing up and moving in the house you were secretly loving but hankering for that better deal. Granted there are many homes that stay on the market for a while but frankly if priced to the market, in a good neighborhood and in good condition the home should sell quite quickly now.

Another buyer mistake that has lost many a home for the would be home owner is flooding the contract with contingencies. The cleaner and neater and without ambiguities the easier for the seller to take the deal. I am a real lover of AS IS contracts ( more on that later) because it takes the guess work out of the deal, you either want it or you don’t. Of course this is not a hard and fast rule but the less complicated the deal the easier it is to make it to the finish line with everyone’s sanity in tact.

I guess we are really doing this backwards because one of the most important things that a buyer can have ready is their prequalification letter in hand. House hunting before you are knowledgeable about what you qualify for is a loosing proposition for everyone. Your agent does not want to get you all excited about 300,000 houses if your budget is for 200,000. Most sellers are wanting that letter in hand before they even accept your offer so be ready so you can get the home that you want for the price that you are comfortable with.

So if you have to sum it up so that the happy home owner gets the pick of the litter quite simply remember do these 4 things:

Make a respectable offer based on the market and condition of the home with the help of your favorite Real Estate agent
Know what you want when you are looking so that when you find it you can act quickly with inspection periods of course.
Make a clean offer with a minimum period for inspections.
Have your financing in order

Now… Ready… Set …GO….. Call your favorite Real Estate agent after you have visited with your favorite banker and soon you should be loading and unloading boxes and enjoying your new home. Thanks for letting me share little knowledge and some joy and until next week remember, “The only people we have to get even with are those that have helped us.”

Renter Beware

It is a common occurance as of late to get a phone call much like this…. “Hey I saw your rental listing and see that we can get a 4 bedroom house for monthly rent of 900.00” Is that really the real deal???? Well thankfully this wise person called us before they sent their money via Western Union to an overseas mystery scammer. Rental scams are on the rise and there is reason to believe that this trend will continue with the bulk of our business being done via internet.

As a Broker it is quite common that scam artist will copy our listings and put a false number to call and mimic a real rental listing. Craigs List is not the only avenue these criminals are using to pull the wool over our eyes, there are inacurrate listings found now on Trulia and Zilow as well.

The story lines follow the same theme…. the renter is typically overseas and most times on a mission trip so they want someone to live in their home for a cheap price. The price is usually much lower than the going rate and the money needs to come via cashiers check or western union wire.

The best way to protect yourself is to call a trusted local Real Estate agent or Rental company to verify your suspicions. I get calls almost weekly from would be victims and thankful that they have reached out to me. Also realize if you see a rock bottom rental price in a high priced neighborhood it may just be, “Too good to be true”

Thanks for letting us share our selves with you each week on Pcbdaily!!! Please remember, “The only people we have to get even with are those that have helped us”

5 Ways to Update your Vacation Rental Property for Rental Season

Spring is almost here and for many of us in Panama City Beach, we’re thinking about how we can best maximize the rental season just ahead of us. At Panama City Beach Luxury Properties, you can be sure we see our fair share of opportunities to update, renovate, suggest and redo to help out properties make the most money they can make.

If you have a rental property, you know how important it is to keep everything updated and in good shape. Letting anything fall too far behind can cost positive reviews or worse, a great rental season.

Here are five easy things you can do to help freshen up your Panama City Beach vacation rental property.

Bedding

One of the easiest (and least expensive) ways to give your place a totally new look is to install new bedding in your vacation property. There are a variety of local options, including Target, Marshall’s and local retail stores that sell a great variety of quality, inexpensive bedding options for all sized beds.

When you’re buying new bedding, make sure you pick out styles and colors that are consistent with the theme of the property. And make sure it’s easily washed incase it needs to be laundered during the rental season. If it needs to be dry cleaned, a quick turn around on a turnover day may be impossible.

Also, when you replace bedding, go the extra mile and get some matching throw pillows for each bed to help finish off the look.

New or Additional Art

So often we walk through new condos and they are fitted with the standard setup they came with when they were brand new. There are many advantages to these kits, including having a cohesive look throughout and a design that was likely well thought out.

However, in the interest of saving costs, the property is often left bare with few art hanging on the walls. I’m a fan or organized and purposeful blank spaces, but when the place looks empty, it feels empty.

There are tons of local places that sell great art that is tasteful, beachy (if that’s your thing), and inexpensive. I’ve even picked up some neat stuff from Marshall’s. There are also a lot of amazing places to shop for art along 30A.

The art you hang should reflect a fun personality, should match the decor of the rental property and should be creatively hung. Take advantage of bare walls to create patterns of pictures and don’t be afraid to hang some family portraits to make it feel personal.

New Furniture

Lets face it, this is probably one of the more expensive things to update in a vacation rental property. Furniture can be costly and very difficult to move in. But, when that old couch can’t be cleaned anymore and the cushions are looking slouchy, it’s time to replace it with something new. The more you try to squeeze that last rental season out of it, the more you’re going to hurt your reviews and repeat visitation.

Sometimes it isn’t all about wear and tear either. Its important to keep your property looking up to date as well. The style and decor of your property should be reviewed about every 5 years or so as styles change. What was considered “in” back in 2008 isn’t necessarily in-style today. You have to realize as new property owners come online and redecorate, eventually you’ll see an industry wide shift in style. And if you miss it, you’ll be left behind.

Decorative Nick-Nacks

One thing I’m asked a lot is, “What about decorative nick-nacks? Should I have them, what if they are lost or broken, and how much is too much?”

These are all great questions. I don’t have some magic formula for how much is a good amount or what to go where, but I reiterate, if it looks empty, it feels empty.

Just like art on the walls, there should be decoration on the shelves, countertops, and nooks and crannies. Now, this is not to say there should be something on ALL countertops and shelves, but there should be some. The trick is to stay tasteful and consistent with the decor and have a balance of not too much and not too little.

Also, just like art, many neat decorations can be found in the same places you’re looking for art. And it doesn’t have to be expensive.

Consistent with all rental properties, I would strongly consider the amount of money you put into decorative items knowing they could be broken or lost by guests, or their children. I never recommend keeping things you’d have serious heartburn over if it were harmed.

Flooring

Again, like furniture, this is one of the more expensive things to address in an aging vacation rental property. But, it is something that needs to be taken care of on a regular basis.

The first thing I recommend on the property with carpet is to have the carpet replaced with a hard-surfaced floor. Now, I like having a soft surface in the bedroom just as much as the next person, but that is easily accomplished by putting in a nice big rug that is easily replaced when needed.

Many people prefer just to tile the entire place, and while that can be a very tasteful solution, there are many other things that you can do to make your condo stand out from the rest.

One of my personal favorite flooring options is a manufactured laminate wood floor. This flooring material is intentionally created to be extremely durable and very good-looking. Generally speaking, it is manufactured so well, that upon first inspection it is indiscernible to the real thing. The reason I personally favor the laminate hardwood flooring is because of its durability, low cost, and it’s ease of replacement should it ever need to be replaced.

When I get to do it however I want, my personal preference is to have a hardwood floor surface in the bedrooms with a huge rug under the bed (extending out the sides) and tile throughout the living and all common areas.

Some Examples of Tasteful Decoration

This is one of our Southern Exposure townhomes. It’s been a phenomenal rental, partly because it’s a townhome right on the beach; but also because it was very tastefully decorated. Guests comment regularly that it’s one of the nicest places they’ve stayed in, hands down.

This condo is one of our Calypso three bedrooms owned by Karen Smith at Beachy Beach (one of the owners of PCBDaily.com). When she bought it, she went all out, buying local art, some new furniture and decorative items to spruce up the existing furniture. What she has done with her rental has created a frenzy of activity that will net a tangible revenue one-upmanship over the competition.

This home is one of our rental properties in Watersound West on 30A. Our 30A rental company, Swantree 30A manages this one and it’s tasteful decor promised positive reviews and a comfy, beachy style.

Real Estate: The Future is bright and I Already Have Shades

The Future is bright and I already have some nice shades!!! (purchased from our wonderful Pier Park)

With all the negative talk in the news and in the local rags you would not know that there are many bright spots in our horizon. Northwest Florida is poised and ready to blossom and flourish. Many renowned and respected groups such as CNNmoney.com, American Express, Fortune Magazine and others are encouraged about our Real Estate market here.

American Express says that Northwest Florida is one of its Top Ten vacation destinations in the country. Northwest Florida is second behind the Orlando area in Florida tourism. Northwest Florida beaches are world-class, drawing over seven million tourists each year — more than any other East Coast beach area.

Continue reading “Real Estate: The Future is bright and I Already Have Shades” →

6 Questions (and answers) about the Extension of the First Time Homebuyer's Tax Credit

I am so excited that the tax buyer credit has not only extended but has expanded. Now move-up/repeat-home buyers can jump on board and reap the benefits of the program. I think most people are aware of the provisions and rules applied to the old bill but thought it would be fun to look at some of the new things available for those that are NOT first time home buyers. The Worker, Home ownership, and Business Assistance Act of 2009 has established a tax credit of up to $6,500 for qualified move-up/repeat-home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).

Continue reading “6 Questions (and answers) about the Extension of the First Time Homebuyer's Tax Credit” →

4 Things to Know About Buying Real Estate Today

I have had a hard time focusing on what I want to discuss with you this week so I decided to share from one of my favorite Real Estate gurus, Barbara Corcoran who is a regular on The Today Show. I love her on so many levels but mostly because after making about straight D’s in high school and having over 20 jobs by age 23 she found her niche!!! I just love stories like that because it proves what I believe: that we all have a gift and how fun it is when we find it and share it. I guess I got a little side tracked with my happy talk so lets get to the Real Estate myths according to Barbara.

Continue reading “4 Things to Know About Buying Real Estate Today” →