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

Who Really Qualifies for a Condo Loan Anyway?

Okay let me clear this up from the very beginning – I am not a loan expert nor do I play one on TV, but these days that would be a great idea. I have had several customers come to me wanting to purchase a condo and they assume that BECAUSE they have great credit and good income then they are good to go. Sometimes they even have a pre-qual letter and they really feel good. Well not so fast. Lets talk about the real skinny about who can get a loan and what they can buy with it.

I rely on the good wisdom of some really good lenders here in Bay County which brings me to one of the most important points. In MOST cases when buying a condo it would be best to use a local lender who is familar with the local market. While we are on the subject of Local a local appraiser is another vital part of the deal. So much has changed in the last few years and even more so in just the last few months. Because I am not a loan expert I am going to address just a few of the issues surrounding loans on condos in Florida. I hope to give you just enough to have you running to your local lender for the rest of the story.

In speaking to one of my favorite Bankers today he shared that back in the good ole days (creative license) that loaning money to folks was like a 3 legged stool that was income, credit and assets. If you had 2 of the 3 then most likely you were good to go. Now we throw a whole new monkey wrench and there are many more issues to consider. First you must have all 3 to get you started. Sounds like the way we used to borrow back in the day when you really had to make the money to buy the deal. What a concept?

One huge difference is that just because you have all 3 it is important that you find out if the condo that you are getting excited about is an approved project for that bank. Many banks take into consideration the saturation of loans in one condo complex, lack of people paying their dues and maybe even litigation issues to determine if the project is loan worthy. So not only does the customer need to be loan worthy so does the condo!!! In addition the bank will evaluate the building , it’s finances, and market conditions for your area.

So now your are feeling confident we have passed the first test and then the lender wants to know, “Is this your primary home?” “Is this your second home and vacation spot? Oops you say your primary home is just a few miles down the road??? Now the scariest question of all… Is this an investment property? Again in speaking to my various lender friends there is no such thing as investment loans on condos today. You will need to use the green stuff.

Another issue that many find discomforting is the fact that there are no longer just good old conventional fixed loans for condos and the amount needed to put down is greater and the interest rate higher. I have brought up more questions than answers but this should get you started with the questions you need to get answered by your favorite lender so you can buy that condo while the deals are great from your FAVORITE REALTOR.

I hope this does not serve to scare you away because there have never been so many deals and so many choices for the buyer it just means that lending is now a much more conservative and intensive process. I encourage you to find a lender to work with so you can be ready for those deals when they come up.

Housing Starts Shoot UP 17%

Mortgage rates have eased somewhat this week as weakness in the stock market has translated into higher demand for bonds. Stocks have been hit by a renewed sense of uncertainty as investors wonder if the rally over the last several months has gotten ahead of the economic realities. A stock’s loss is a bond’s gain and the thirty-year fixed mortgage rate now stands at 5.50%. Fifteen year fixed rates are just below 5% at 4.875%. The jumbo market continues to be nearly non-existent with thirty year rates for loans over $417,000 back over 7% with no relief in sight.

More signs the housing market is stabilizing could be found in a report released by the Census Bureau that showed housing starts jumped 17.2% in May to an annualized pace of 532,000 after a revised estimate of 454,000 in April. The data also revealed that new building permits rose by 4% in May. Other news, on the economy as a whole, showed inflation at the wholesale level remains in check with the Producer Price Index rising by a modest .2% last month. Economists had expected a rise of three times that at .6%. Year over year, wholesale prices have fallen by 5% – the largest annual rate of price decline since 1949.

There is a lot of talk in the media about the fact that financing for real estate is so difficult to obtain these days and it is true that underwriting and credit standards have tightened significantly. Yet most of the difficulties lie in the second home, investor and condo markets. For primary residence purchasers buying single family detached homes, however, times could not be better. Low rates are still with us ( yes 5.50% is low) there is an $8,000 first –time buyer tax credit, home prices are their lowest in years and mortgage programs abound. FHA , Rural Development and VA loans are still extremely attractive options with relaxed down payment, credit, and debt ratio requirements and offer repeat and first-time buyers alike an opportunity to take advantage of the amazing deals to be found right now. I would be happy to explain these programs in detail with anyone interested.

Mortgage Rates Spike

Mortgage rates rose another .25% over the last week and now stand at 5.75% for thirty-year fixed with no points. We are seeing some steadying, however, as the bond market appears to have stabilized and stocks have been flat for the last few days. With no large government bond auctions this week we should not see any further rate deterioration and rates could possibly ease slightly.

Fed Chairman Ben Bernanke has expressed frustration with the rising rates insisting that low rates are critical to a sustained recovery in the housing market. To that end, he and the Fed stand prepared to purchase billions more in mortgage-backed securities to drive rates lower if necessary.

On the economic front, the Commerce Department reported last Friday that new claims for jobless benefits fell in May by a much larger than expected amount though the overall unemployment rate rose to 9.4% – its highest level in twenty six years. While on the surface it may appear that losing 450,000 jobs in one month is a bad thing it indicates a marked drop in the rate of job losses and further evidence the economy is stabilizing.

On Tuesday, however, the government reported that wholesale inventories shrank to $405 billion, the lowest level since September, suggesting companies were adjusting inventories downward to offset further anticipated declines in sales.

One last note I reported on two weeks ago, HUD has now issued its final rule on utilization of the $8,000 homebuyer tax credit in conjunction with FHA insured mortgages. After first indicating they would allow for those funds to be used for repayment of a bridge loan to cover down payment and closing costs, HUD now has backed away from that plan fearing it carried many of the same risks as the now defunct homebuyer’s assistance programs.

HUD ruled that while the tax credit funds may be borrowed against for such things as closing costs, pre-paids and rate buy-downs, the borrower must still bring 3.5% of his or her own funds to the closing table. This is a hugely significant decision as the major hurdle most FHA borrowers and, indeed, most first-time homebuyers is lack of down payment. Many saw the use of the tax credit for down payment as a way of bringing an untapped segment of the population into the housing market and thus stabilizing the sector and overall economy.

Community Banks Lending Despite Credit Crunch

As regional and national banks eagerly rush to accept government bailout loans in the face of frozen credit markets, local community banks are quickly becoming the go-to source for mortgage loans in Florida. Despite tighter underwriting guidelines from Freddie Mac and Fannie Mae and a secondary mortgage market with little appetite for Florida real estate, local community banks are still stepping in with loans designed to accommodate the local real estate market. These local banks have studied the specific needs of our local market and are offering loans tailored to the unique needs of Bay and surrounding counties.

One example is Panama City Beach. On the beach, the vast majority of properties listed for sale are condominiums which sprouted up all along the coast in the boom years of the first half of the decade. The flurry of condo development was due, in part, to the easy flow of credit and lax underwriting and property standards so prevalent at the time. Now, as investors paint all of Florida with the same broad brush, Beach condos are left with the same stigma as South Florida and labeled as “condo-tels” – a name coined by Fannie Mae and Freddie Mac to describe a hybrid between a condo and a hotel with resort-like facilities and daily rental desks. Though Fannie and Freddie didn’t seem to draw a distinction between condos and condo-tels in the past, they certainly do now. Financing for these properties has all but evaporated leaving many prospective second-home buyers with no options. Enter the community bank.

With deep roots all along the Florida Panhandle and in their respective markets, community banks understand our unique market and have a vested interest in its success. One such local community bank is Vision Bank. With a sincere belief in the viability of the Beach condo market, Vision Bank is lending its own money by developing portfolio products designed to provide affordable options for the local real estate market and the out of state second-home buyers so crucial to its resurgence. Vision Bank, while adhering to sound lending practices and diligent underwriting, is offering bank-held, fully amortizing mortgage products with no pre-payment penalties and no hidden fees designed specifically for the condo-tel market. Vision knows this market and knows that more condo sales will help stabilize prices and draw even more potential buyers back to the Beach and all of Bay County. That is the essence of a community bank – investing back in the community.

For this and more, visit my blog at www.activerain.com/blogs/hpalmer

Hunter Palmer