Buyer’s Choice Realty blog

Are you a first time buyer? Have you not bought in a long time? Do you have questions about how you can save money in this buyer’s market? Well my goodness do we have something special for you.

Join us at Countrywide’s Peabody branch on 202 Newbury St. on Route 1 south on May 20th. I promise you won’t be disappointed. The program starts at 7pm and will run until 9 or so. You can reserve a seat by calling 978-536-1313. This free program is sure to be valuable to you if you are thinking about buying a home in the next 6-12 months or just want some questions answered.

What will be covered? How to buy foreclosures, negotiating tips in this market, determining how much to offer, how to buy with little or no money down, problems to avoid when buying, home inspection tips, and information for veterans on VA loans. If you have any questions, feel free to attend and pick our brains.

A real estate attorney, a member of the buyer broker hall of fame, and loan consultants with experience in home repair/rehab loans, credit repair, and government loans will all be presenting. Hope to see you there!

Home sales are way down, that much we know. Sales closing in March of 2008 were down almost a third from the same time frame a year earlier. How come? Without knowing all the facts, one would first point to the struggling economy. Recession fears are all over the news right now. Is that the problem? No. Boston’s economy continues to improve, and although there have been some layoffs in the financial services industry, job growth in our area remains steady. Popular sectors still hiring and growing in the Boston area are high tech and biotech firms. In fact, the economy has grown 3% in the first quarter.

So what’s the deal? Unfortunately, it’s the credit crisis. Lenders are continuing to restrict their loans. They are having a harder time finding money to lend to buyers, and if you don’t have at least 5% saved to put towards a down payment, you will find it very hard to get a loan. I have spoken to quite a few potential buyers who are not able to get preapproved, and in most cases it is because they are looking to buy with little to no money down. Until lenders can access money more readily, this trend is bound to continue.

The majority of owners with homes on the market right now will be looking to turn around and buy again as soon as their current home sells, but with fewer qualified buyers looking at their home, time on the market will not go down until this credit crisis eases.

If you are a buyer with less than a 5% down payment, there are alternatives out there. FHA loans are becoming increasingly popular and may be a good alternative to traditional lenders and brokers. If you are thinking about entering this buyer’s market, ask for help in obtaining preapproval for a loan. Many good agents know about current loan standards, and we at Buyer’s Choice are knowledgeable in this area and can point you to available resources.

As stated in our previous post, there are new restrictions regarding who can actually get approved for a loan. I’d again like to thank Dawn Davis, president of Rate One Mortgage, for her explanation of this issue. As we wrote previously, this will mostly affect potential buyers who do not have a large amount to put down on their purchase. Here are the details, as provided by Ms. Davis.

For those looking for 100% or 97% financing, it will not be available. 100% financing will be reduced to 95%, and 97% financing will be reduced to 92%. In these cases, buyers will need to increase their down payment by 5%. For some, this may not be possible and they may be forced to wait until they are able to save some money. But, for many, there are some alternatives to obtaining the additional funds needed for down payment.

Buyers who are approved for 100% financing and will actually receive 95% financing can use their own funds or gift funds for their down payment. They are not permitted to borrow the money unless they make a loan against retirement funds such as a 401k account. Lenders document gift funds by obtaining a gift letter from the donor and evidence that the gift funds have been received by the buyer.
After closing, many buyers actually repay the gift money they received. Clients who are approved for 97% financing and will actually receive 92% financing must demonstrate that 3% of their down payment is coming from their own funds. Lenders document this by obtaining a copy of the buyers’ most recent asset statement. The remaining 5% of their down payment can come from their own funds, from a gift, or from a loan against a 401k.

Buyers who are approved for 95% financing and will actually receive 90% financing must demonstrate that 5% of their down payment is coming from their own funds. Lenders document this by obtaining a copy of the buyers’ most recent asset statement. The remaining 5% of their down payment can come from their own funds, from a gift, or from a loan against a 401k.

Maximum allowable seller contributions are as follows: If the buyers are receiving 95% financing, the seller can contribute up to 3% of the purchase price toward the buyers’ closing costs and prepaid items.If the buyers are receiving 90% financing or less, the seller can contribute up to 6% of the purchase price toward the buyers’ closing costs and prepaid items.

Dawn Davis, president of Rate One Mortgage, recently alerted us to new lending regulations regarding conforming loans, which are loans that meet GSE guidelines. While this may seem like a mouthful, in reality it is a simple concept. Fannie Mae and Freddie Mac, two government agencies that purchase loans and repackage them to sell on the secondary market. Conforming loans have set standards which can be found at the link just presented, and they encompass the vast majority of loans that lenders will make, because they are much easier to sell than non-conforming loans.

Because of the vast purchasing power Fannie and Freddie have, every lender except local banks that portfolio all their loans (essentially use their own money and do not sell them) must follow the guidelines set forth by them.

All counties surrounding Boston have been named declining markets by Fannie and Freddie. What is a declining market? There’s no set definition, but basically it is any area (as defined by zip code for instance) where property values are falling. It is explained somewhat on a page from Fannie Mae’s website.

Now to the info - if you as a consumer/potential buyer have saved enough to put down 10% of your purchase, there should be no problems. The issue comes in with buyers who are seeking 95, 97, and 100% loan-to-value loans. These buyers will essentially have to come up with at least 5% for a down payment in order to qualify for funding. Private mortgage insurance companies have agreed to this new stipulation as well, and buyers generally must pay PMI if they finance more than 80% of the value of their home. Unfortunately, this will remove many potential buyers from the market until they save money. Also, a buyer must prove that a substantial amount of their down payment is coming from their own funds, so gifts and loans from a 401k will not pass muster.

If you have questions about loans and any terms that you come across in your research about financing a home purchase, please call us at 978.468.2138, or log on to Buyer’s Choice Realty to find more contact information. We will do our best to help answer any questions you may have. Creativity is key for buyers who do not have a significant amount of cash for a down payment.

You are serious about leaving where you are currently living. You have found a great agent to help you find your ideal home (clearly you will choose an Exclusive Buyer’s Agent to ensure that your best interests are represented!), and now you have to take the important step of applying for and obtaining a loan to finance your purchase. If you break any of the following 11 rules, you can be sure you will not get the house that you love. It’s simple - don’t do any of the following.

• Don’t quit your job. Don’t change jobs. Don’t become self-employed. After you have applied for a loan, any change in your work status will raise a giant red flag with your lender. Stick it out until you have closed on your property and actually have the loan funds.
• Do not buy any vehicles - car, truck, van, motorcycle, boat, etc. Unless you can purchase the aforementioned vehicle with cash and still maintain enough savings/liquidity, you will increase your current debt and lose out on the loan.
• Do not use credit/charge cards excessively. If you must use your credit card(s), pay on time! Late payments will only cause trouble for you.
• Along credit card lines, do not transfer balances between credit cards. Just don’t do it until your loan has cleared.
• You should have money set aside for closing costs. Do not spend this money under any circumstance. Pretend it doesn’t exist so it will be there for you at closing.
• Do not buy furniture. Do not make any large recreational purchase unless you pay cash and still keep enough in your accounts. Do not buy that 42″ 1080p HDTV you have had your eyes on. Resist the temptation until after closing. Then you can get it if you have enough money after all costs relating to the purchase of your new home have been paid.
• On your loan application, be honest about your current debts/liabilities. Leaving them out will not help you. Your lender will not like that because after they pull your credit they will undoubtedly see all your debts anyway.
• Regarding the above, do not originate any inquiries into your credit, except for the express purpose of obtaining approval for a real estate loan. Consult with a credit expert (your loan officer, someone you trust at your bank, etc.) about credit inquiries. Too many inquiries in a period of time will hurt your credit.
• Do not co-sign on a loan for anyone. Your son wants to buy a new car? He has to finance it on his own or he doesn’t get it. Your sister is in a bind? Help her if you can, but do not put your signature on any loans as additional collateral for others. In the short term period between applying for a loan and closing on a house, you must be selfish regarding your money and credit.
• Do not make large deposits without first checking with your loan officer. Self-explanatory. Make sure you have a solid working relationship with a loan officer who will be available to answer your questions.
• Do not change bank accounts. Even if you are unhappy with your current bank, hang on until after closing.

Hopefully these rules will help you as you enter the scary yet exciting process of buying a home, and all that entails.

Our own Pat Magnell was featured in a Boston Globe article by Kimberly Blanton. Pat was asked how the latest news from Countrywide Financial Corp. might affect prices and buyers’ confidence over the fall months and into next year. She observed that buyers are starting to pay attention to the mortgage crisis because of the big name lender that is now involved with solvency issues. Pat stated that many smaller lenders have closed shop over the past year +, but not until now have consumers begun to fully realize what this means to their hopes of either selling or buying a home. As a result, buyers are waiting longer to purchase in the hopes that prices will continue to drop.

In case you haven’t heard, Countrywide announced that they were going to begin cutting back on their lending due to using their enormous line of credit up. What does this mean for you? You may have a tougher time getting approved for a loan due to bootstrap tightening by many of the nation’s largest lenders and mortgage brokers. Per Ms. Blanton’s astute observations, this will hurt those who need loans the most: first time buyers and those with little or no money to put down on a home purchase. Also feeling the pain are buyers who wish to buy expensive homes and need to obtain what are known as jumbo loans.

Buyers can expect prices to continue to drop into the fall as lenders increase interest rates and enact more lending restrictions. This is a good sign if you are already preapproved and have your finances in order. On the other hand, those wishing to pursue the American dream of buying a home may find themselves out of luck for the foreseeable future.