Posts Tagged 'conventional financing'

House Hunting Frustration Setting In! Solutions to help your cause!

Are you searching for a home in Roseville, California? Are you searching for a home in Sacramento, California? Are you searching for a home in Placer county? If so this is for you.

Buying your new dream home is absolutely a process. This process can take time. It can also be a numbers game. What I mean by that is you may have to write an offer on several homes before one sticks. I work buyers in the greater Sacramento and Sonoma county areas. Some of my buyers have been approved for a home loan for 6 months or more. What are they waiting for? They are waiting to find a home that fits. Price, Location, and style matches are important to every consumer.

Naturally I wanted to take a look at the statistics in February 2009 to see the trends of the market and why finding the right home may be so difficult. When doing the search I found the following statistics to answer a few of my questions:

Stat: 54.91% of the homes that were sold were sold in the first 60 days – Homes are moving and they are moving fast. If you are a buyer in the market you have to be willing to act fast.

Solution – As a consumer you have to know what all of your numbers are. You have to be aware of your max. You have to have a list of the must haves, wants, and not needed in your home. Know the Maximum you are willing to spend, the minimum credits you may need, have your down-payment lined up, and get approved with cushion in your rate to cover the volatility of the market.

Stat: 59% of the homes that were sold were bought with Conventional Financing – This was a surprising statistic for me at first and then I reviewed my closings 6 and realized that I was exactly 50% conventional and 50% FHA.

Solution: Conventional financing requires a minimum 5% down which is difficult to do most realistically 10% down. Mortgage insurance requirements are tightening greatly. FHA minimum down payment is 3.5%. They also allow a 6% seller credit while conventional allows for 3% unless you put 20% down or more.

Stat: 63% of the homes that sold were between 200K-400K – There is a lot of competition in certain price points. The inventory is not as think as it was because the moratorium on new bank owned properties. What this means to you is that if you are approved for 225K you should start your search at 200K. This would allow you to remain in the hunt if there are multiple offers. This will save you time in the long run. I have found that if you search at your max range and the counter for highest and best you are out. This is a contributing factor to the frustration.

Summary: Know your stats and your price range. Be prepared to fight the fight. If you want a home bad enough you will make sure that you are prepared. As professionals we are going to help you do this. Be prepared to have the talk about expectations and the list that you have of must haves. Are they really a necessity if so awesome let’s look but it could be a while. There are three main categories when looking for a home and those are:

Location – This is very important. Children’s schools, proximity to work, and of course the Local restaurants of the area. This is one that you you generally do not want to sacrifice on.

Price – You are approved for what you are approved for. That is why I recommend starting your search under your max and working your way up. It gives you the flexibility to compete.

Style – This is the layout and the number of baths, garages etc. This is the one that generally ends up being sacrificed. The reason is that the other two are real difficult to give up. This is why I think that it is imperative to have you lists of must haves and wants.

Many times you will sacrifice in a category. Have a plan for this as well. Widen your search and locations.

As Always thank you for Reading,



Fannie Mae/ Freddie Mac Costs

Fannie MAE and Freddie Mac have gone to risk based pricing. This is not new news as loans have always been priced and approved based on levels of risk. When you as a consumer are looking to be financed the lender is evaluating three things. We refer to them as the three c’s.

Credit – this is your history of repayment of other loans such as auto, note loans, installment, student loans and revolving debts such as credit cards. Your mid fico score is seen to be a fair reflection of your repayment history. Experian, transunion and equifax are the three bureaus who produce these snapshots in time that generate your scores.

Collateral – this refers to the property and the down payment or equity position you are in. Having 20% equity in a home is considered the breakeven point for a lender in the event they have to foreclose. Naturally the greater the equity the lower the risk. Someone with 40% plus is not likely to let a home slip away and has the ability to price to sell if they get into a dangerous position.

Capacity – this is your ability to repay the debt. Your income, more importantly claimed documentable income is what they are looking for. This is the arena that was most widely abused in recent years and as a result has become the most scrutinized and most important. Income is only part of capacity as length on the job, type of job and how you are paid are additional factors that are very important. Your debt to income ratio is your housing and other credit related minimums divided by your gross monthly income. The goal is to not have this exceed 43%. that means that the house and all the debt represent 43% of your GROSS income.

Traditionally, if you he a 620 fico score, 20% equity position and documented your income on a purchase you would qualify for the lowest wholesale rates we have to offer. However, this has changed drastically and it is undergoing another set of revisions.

Today you have to have a 740 fico to be in the top tier and from there it drops off fast. Those who want to refinance and take no cash out of their home with a 695 fico and 20-25% equity have to pay a 1.5% risk adjusment. This means that their par wholesale rate will be much higher than those with 740. Yield spread premiums are paid to brokers by wholesalers for selling higher rates or to absorb these costs. (another blog entirely) today the Ysps are not large enough to cover that 1.5% so the costs are passed on to the client making loans more expensive.

This one example is a cheaper example of the pricing adjustments that have been passed onto us all. So although rates are low it does not mean that you will get a low rate or if you do you may have to pay for it. Raising costs and adjustments is just one way for these companies to make up for losses.

The end result is that government loans such as FHA, VA and USDA do not impose such adjustments. Do not he suprised if your broker or loan officer tells you that FHA may be a more cost effective approach to financing your home. As always consult your professional and ask them to explain or show this to you in a manner that makes sense.

Good luck and until next time.

July 2018
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