Massachusetts Home Buyer Guide

Higher Home Loan Fees Counter Housing Stimulus

Mortgage interest rates might be low, but some consumers will be looking at increased fees on home loans starting April 1, 2009, The Washington Post columnist Kenneth Harney wrote February 14, 2009.

Fannie Mae and Freddie Mac are increasing mandatory fees and toughening credit score and down-payment rules starting next month. 

"Most major lenders already are pricing in these higher fees, effectively raising costs to borrowers immediately and reducing the impact of housing stimulus efforts from Congress and the Obama administration."

Under the new guidelines, even potential borrowers who assumed that their FICO credit scores would get them favorable rates will be charged more unless they can come up with down payments of 30 percent or more. For example, a buyer with a 699 FICO score who brings a sizable down payment of about 25 percent to the closing will be hit with a 1.5 percent "delivery" fee at closing.

A buyer with a FICO score between 700 and 720 will pay an extra three-quarters of a point. Even someone with a FICO score from 720 to 739 will pay a quarter-point fee.

Condominium buyers who cannot come up with a 25 percent down payment will be hit with a three-quarter point penalty fee, no matter how high their credit score, simply because they are not purchasing a traditional detached, stand-alone house. That's unfair.

"Buyers of duplexes, where one unit is owner-occupied and the other is rented, will be charged a flat 1 percent fee from Fannie, even if they have FICOs above 800 and make 50 percent down payments. Refinancers who take cash out at settlement also will be forced to pay extra, as much as three points if they have low credit scores and modest equity stakes."

Both Fannie Mae and Freddie Mac report that the extra fees are necessary to counter higher risks and losses associated with certain loan products and borrowers.

In other words, people with decent credit and a down payment are paying for the deadbeats with lousy credit and no money down who borrowed money a few years ago.

Losses for the two companies have increased due to declining home values in many parts of the country. Homes are worth a lot less after foreclosure. 

"Although they were quasi-private enterprises until September, Fannie and Freddie now are operating under federal control and are bleeding billions of dollars of red ink. Freddie spokesman Brad German said that some of the loan categories and credit risk combinations targeted in the latest round of fees 'default at four to eight times' the rate of other mortgages in the company's portfolio. 'We have to manage these risks appropriately,' he added, and that means pricing them based on the probability of higher losses."

Sure, some borrowers are a greater credit risk than others, but Fannie and Freddie are charging consumers with, for example, 700+ credit scores and 20 percent down payments more fees because they can, plain and simple. It seems that people who have a history of paying their bills on time and using credit wisely are being penalized by many recent government and corporate policies.  

It's ridiculous and counterproductive in an environment in which real estate markets around the country need a shot in the arm, not roadblocks to getting home buyers into homes.

The National Association of REALTORS® and other industry groups oppose the new fees and plan to lobby Congress and federal regulators to back off the new guidelines.

"As recently as two years ago, FICO scores in the upper 600s were enough to qualify any applicant for prime financing. Now scores of 720 to 740 are the bare minimum if you're going to escape add-on fees -- and still not good enough if you choose to buy a condo or a duplex."

There is an alternative available for just about anyone who wants to avoid these new fees: Federal Housing Administration (FHA) mortgages, where down payments go as low as 3.5 percent and credit scores are far less of an issue for most potential borrowers.

Get a referral for a competent, honest, mortgage professional.

Read The Washington Post Column.

FHA Only Requires 3.5 Percent Down Payment

The National Association of REALTORS® put out an advisory to the media on December 31, 2008 regarding the facts about how much of a down payment a home buyer needs in the current market. The following is the release to the media.

There is some misinformation in the media lately about the required size of a down payment for a mortgage in today’s market, and the blog world is abuzz with misperceptions. Not all so-called experts are knowledgeable in this area, and some experts are being misunderstood.

The facts:

1. An individual may be required to put down 20 percent based on that person’s financial situation. But that is not an across-the-board requirement for all borrowers.
2. A borrower who puts down less than 20 percent is required to obtain mortgage insurance.
3. Even in a declining market, a borrower is required to make at least a 5 or 10 percent down payment.
4. FHA requires a 3.5 percent down payment by borrowers, so long as they meet a 31 percent housing cost-to-income ratio. In other words, anyone who stays within their budget and who can afford a 3.5 percent down payment (even with family help) can become a homeowner.

PLEASE NOTE: FHA market share has grown roughly tenfold in the past year to an estimated 30 percent of new mortgage originations.

Consider The Costs Of Buying / Owning A Home

An April 10, 2008 post on Bankaholic discussed the various costs of buying and owning a home, and how one should carefully budget for such a major financial event.

The post contains simple, but sound, advice, such as the following.

"A good question to ask yourself before contacting your local banker to discuss a loan is, ‘how much is too much?’ While you might be tempted to try and get as much money as possible if you can find a good rate, you do not want to make the mistake of taking on a loan so big that your finances will be stretched to the point that you cannot make your payments."

Read The Entire Bankaholic Post

New Jumbo Loans

As part of the recently implemented economic stimulus package, home buyers will be able to borrow and homeowners will be able to refinance larger loans approved by the Federal Housing Administration (FHA), the Boston Herald reported March 30, 2008.

"Depending on the location of the property you want to buy or refinance, you can now get an FHA-insured mortgage for as much as $729,750 with a 3 percent down payment. You can also apply for loans designated for funding by Fannie Mae and Freddie Mac up to that amount - or 125 percent of your area’s median home price - but with larger down payments of at least 10 percent."

The previous amount was $417,000.

"Absent congressional action, the limits will drop back to $417,000 for Fannie and Freddie, and to $362,790 for FHA, beginning New Year’s Day. In the meantime, there should be plenty of jumbo mortgage money available for anyone who can afford it."

Among other conditions, you'll need a minimum of 10 percent for a down payment, and you need a minimum credit score of 700, if you're putting down less than 20 percent.

Read The Boston Herald Article

Historical Mortgage Interest Rate Data

Freddic Mac provides historical data on mortgage interest rates on its Web site dating back to 1971.

Be sure to check out interest rates in 1982.

First-time Home Buyer Seminar April 5, 2008

Buyers Brokers Only, LLC is sponsoring a first-time home buyer seminar on Saturday April 5, 2008 from 10 a.m. to 12 p.m. at the Best Western (401 Lowell Avenue, Haverhill, MA) in Haverhill.

Learn about every aspect of buying a home: mortgages, pre approval, finding a home (single-family, condos, multi-families, new construction), the multiple listing service (MLS), buying bank-owned properties and short sales, negotiating the best price, home inspections, purchase & sale agreement, the closing, tips and advice from the professionals and an opportunity to ask all your questions.

Space Limited: Please RSVP by filling out the form online or by contacting Alexa by April 3, 2008 at 978.457.4552 or astone@buyersbrokersonly.com. Space is limited to 50 people.

Knowledgeable Speakers:
Richard J. Rosa, Esq., Buyers Brokers Only, LLC: Rich is a real estate broker, lawyer and co-owner of Buyers Brokers Only, LLC. He has practiced law for 12 years, and he is a member of the Massachusetts Association of Buyer Agents.

David S. Kres, Esq., Buyers Brokers Only, LLC: Dave is a real estate broker and lawyer, as well as co-owner of Buyers Brokers Only, LLC. Dave earned the North Shore Association of REALTORS® (NSAR) Rookie of the Year award in 2006 and currently is the president-elect at NSAR.

Robert Barr, VIP Mortgage: Rob is the vice president of sales for VIP Mortgage, located in Danvers, MA. He has 20 years of experience in the mortgage industry and has helped more than 1,000 individuals/families finance their first home.

Jeffrey Stelman, Esq., Schribman & Stelman, LLP: Jeff is a partner in the law firm of Shribman & Stelman, LLP, located in Salem, MA. He has practiced law for 17 years and has conducted more than 1,500 real estate closings.

Josh Amsler, Jackson Home Inspection: Josh works for Jackson Home Inspection in Andover, MA. He has more than 10 years experience as a licensed home inspector and has completed more than 6,000 home inspections. He also is a member of the National Association of Home Inspectors.

Donation: $15 per person. All proceeds going to Rebuilding Together Greater Haverhill, Inc., which helps revitalize homes and neighborhoods for low-income homeowners and communities in need, especially the elderly, the disabled and families, helping them to live in warmth, safety and independence. Please make checks payable to Rebuilding Together Greater Haverhill Inc., and please mail checks to Buyers Brokers Only, LLC, 7 Kenoza Avenue Haverhill MA 01830. Space limited to first 50 people, so please RSVP.

Appraisal v. Inspection

An appraisal and an inspection are not the same thing.

Many first-time home buyers wonder about the difference between a property appraisal and an inspection, and how each is used during the home buying process.

An appraisal is a formal assessment of the value of a home or property. When you are seeking financing, the lender usually requires an appraisal to ascertain the value of the property in order to make sure the loan amount does not exceed the value of the property being sold.

An inspection is an assessment of the systems and structural integrity of the property. It's normally ordered and paid for by the buyer at the time of inspection to find any hidden problems with the property. An inspection is often written into an offer to purchase as a condition of the sale in Massachusetts.

In New Hampshire, an inspection is written into the purchase and sale agreement as a condition of sale.

Tips To Repair Your Credit Score

An article by Inman News, a real estate industry publisher, on Boston.com discusses tips to increase your credit score.

The article talks about some basic and easy-to-do things, but it's worth reading if you're in the market for a home loan and want to boost your credit score over the next few months.

I wrote a post last week about the formula for calculating a credit score changing.

Read The Boston.com Article

Check Your Credit Report For Errors

We all know that maintaining good credit is critical, especially in this lending environment, but even if you do your part a creditor might not be doing its job correctly.

A short article in the December Money magazine discusses consumer rights under the Fair Credit Reporting Act and provides tips to make sure errors in your credit report are corrected.

"A recent study by the U.S. Public Interest Research Group found that 25 percent of credit reports have mistakes serious enough to cause a denial of credit. With today’s tighter loan standards, it’s critical to make sure your report is up to snuff."

Read The Money Magazine Article

What's Better, Renting or Buying?

Whether buying or renting is better depends on your personal circumstances.

Several factors need to be considered, including the rent you pay, the price of the home you plan to purchase, the mortgage interest rate, how long you plan to remain in the home and other factors.

Here's a handy free calculator from Ginnie Mae that will help you decide whether renting or buying makes more sense financially for you. It's a great tool.

The default amount for property taxes is 1 percent. That is probably a little low for our part of the country. I suggest changing that variable to 1.25 percent or 1.5 percent for Massachusetts and from 1.5 percent to 2 percent for New Hampshire to get a more accurate calculation.

The Only Place To Get A Free Credit Report

Only one Web site is authorized to take requests from consumers for the free annual credit report you are entitled to under law.

That Web site is AnnualCreditReport.com. Other Web sites that claim to offer “free" credit reports, credit scores and credit monitoring are not part of the legally mandated free annual credit report program. In most, if not all, cases, the “free” product comes with strings attached.

You're are not entitled to a free copy of your credit score. Companies are allowed to charge a reasonable fee, generally around $6 to $10, for your credit score. When you buy your score, sometimes you get information on how you can improve it.

I've written a lot about the importance of your credit score, especially in the current lending environment. If you plan on purchasing a home within the next 12 to 18 months, it probably is a good idea to get your score now. Individuals with scores of 720 or higher generally get the best mortgage interest rates and terms. Knowing your score now will give you time to correct errors and take steps to improve it.

Your Credit Score More Important Than Ever

It's not news to anyone that maintaining a respectable credit score is vital to obtaining a home loan and a competitive mortgage interest rate.

What's respectable in the current lending environment may be news to many consumers.

According to an August 26, 2007 article in the Boston Herald, underwriting standards adopted by various lenders have increased the minimum credit score necessary to stay out of the subprime lending pool.

A minimum credit score of 620 had been the typical cutoff point between a traditional loan and a subprime loan; however, some lenders now are requiring minimum scores of 680, a significant increase. For limited documentation loans, some lenders are requiring a credit score of at least 720.

Mortgage brokers I speak with regularly have been telling me for months that underwriting standards literally have been changing on a daily basis, and many loan programs are no longer available.

Read The Boston Herald Article

Is Your Credit Card Increasing Your Mortgage Payments?

Your credit card may be lowering your credit score and increasing your mortgage interest rate, and it isn't just that late payment seven months ago.

The Boston Herald reported August 5, 2007 that some credit card companies do not report credit limits to the credit reporting bureaus, and the failure to do so may be affecting your credit score.

"This can artificially depress your credit, because 30 percent of your credit score is based on what’s called 'utilization.' What is credit utilization? If your credit card has a $5,000 credit limit and you’re carrying a $4,750 balance, you’ve got a 95 percent utilization rate. Credit-scoring systems automatically subtract points for such high utilization rates."

Many consumers are discovering that their credit score is especially important in this lending environment.

Read This Article

Tips And Info For Comparing Home Loans

A July 29, 2007 column in The Coloradoan, a newspaper in Fort Collins, CO, discusses the variables that affect home loan interest rates.

The article also provides information that can be used to make an informed decision when shopping for a home loan and comparing mortgage interest rates.

"The way to compare one lender's loan offering to another is via the good faith and truth in lending form. The good faith estimate itemizes the closing costs and calculates the payment. The truth in lending form calculates the annual percentage rate and indicates any prepayment penalty, balloon payments due or variable interest rate. Generally, the larger the difference between the interest rate charged and the annual percentage rate, the more fees you are paying. The federal government requires both these forms."

Read This Article

Credit Score Especially Important In This Lending Climate

With all the recent foreclosures blamed on subprime lending (loans to those individuals with less than good credit), a solid credit score is increasingly necessary to not only get a home loan, but to get a lower interest rate.

Some mortgage brokers are using tighter lending standards and lower credit scores as an excuse to put borrowers in higher-rate mortgages. In some cases it is justified, but not all cases. Recently rising mortgage interest rates makes it even more important to shop around for the best rate and terms.

USA Today reported on July 2, 2007 about this topic.

"In response to a sharp rise in foreclosures, mortgage lenders have tightened their standards, leading to an increase in rejected applications."

You can obtain your credit report, not your score, for free at http://www.annualcreditreport.com. You'll have to purchase your credit score, usually between $5 and $10.

"In addition, interest rates have been rising in recent weeks, so even if you qualify for a mortgage, you'll probably pay more for it. That means it's more important than ever to make sure your credit score is in good shape."

Read This Article