Need Money to Pay Your Closing Costs? Try This ...

Ahh, the good old days … homes for sale were plentiful and buyers had no problem getting sellers to pony up 3 percent to cover their closing costs.

Wake up … its time to let go of the past!
Inventory is tight and multiple offers allow sellers to pick and choose the best deals. Cash is always king but when offers in this market involve financing, the cleaner the better.

That means buyers who aren’t asking for seller credits now have an advantage over those who are.

FHA buyers who have money saved for the 3.5 percent down but short cash to close may qualify for California’s CHDAP program. It offers up to 3 percent that can be used for closing costs. Here are some key features:

• it’s a silent second so no monthly payment is required
• the rate is 3.25 percent amortized over 30 years
• must be a first time home buyer
• only available for homes in California
• buyer must have at least 3 percent of their own funds into the transaction (no gifts allowed)
• need a 680 minimum FICO
• max DTI is 45 percent
• income and sales price limits apply
• online homebuyer education required
• the loan is payable when the home is sold or refinanced

Sounds pretty good doesn’t it. CLICK HERE to see the “sales limits” for California and CLICK HERE for the “income limits“.

Need more information … contact me.

The New Good Faith Estimate, part 2

Three weeks into the New Year and the real estate industry continues to digest RESPA’s new Good Faith Estimate form and rules. In Part 1 of my blog on this topic, I mentioned there were features in GFE 2010 that I like.

If you ask a borrower who didn’t have a good financing experience, you will likely hear a common reason was their “cash to close” ended up significantly higher than what they were told or expected. These surprises happened whether a loan came from a traditional bank or mortgage broker. The new GFE will prevent this because once fees are disclosed in a section called “Your Adjusted Origination Charges” they can NOT change. NO MATTER WHAT! And this section contains the bulk of costs associated with obtaining a loan.

The new GFE breaks down costs into 3 sections.

FIRST SECTION, amounts cannot change from beginning to end of loan
SECOND SECTION, there can only be a 10% variance
THIRD SECTION, allows changes for things we have no control over like your hazard insurance premium and property taxes

I also like that my conversation with borrowers now focuses on interest rates and the corresponding “lender rebate” (a credit) that now belongs to the borrower and used to lower loan costs. When it comes to numbers, I have learned that borrowers are most interested in their total cost, interest rate, loan program and cash to close. GFE 2010 summarizes many fees into one category and itemizes certain others. With few exceptions, figures disclosed on a GFE at the beginning of the loan process will be the same as those at the end.

According to RESPA, a loan originator must issue a GFE no later than 3 business days after they receive the following information:

1) borrower’s name
2) monthly income
3) social security # to obtain a credit report
4) estimated value of property
5) loan amount
6) property address

Without all the above, don’t expect any loan originator will give you a GFE nor are they required to by law. This includes during the pre-approval process and prior to having a purchase agreement in place. In the case of a purchase, if you want to shop for “true loan costs” you will be doing it after a purchase offer has been accepted.

Two problems of the new GFE is ... it doesn't provide a cash-to-close area for the borrower. Nor does it detail the proposed housing payment associated with the loan. It's focus is merely to provide total loan costs. Borrowers and their mortgage advisors will have to use other means to get those questions answered.

The New Good Faith Estimate, part 1

The mortgage industry is … in the words of Elvis … “All Shook Up” over the new Good Faith Estimate that become the gold standard on January 1, 2010. So what’s the hoopla you ask?

It’s not the fact that a one page form is now a three page document. I actually like many features of the new GFE and think consumers will too.

It’s not even the additional areas now required to be disclosed. I’ve gotten used to change.

The problem is … HUD & RESPA have dropped this regulatory ball in our laps without regard to the fact that it doesn’t play nicely with the other disclosures they require us to provide borrowers like Truth-in-lending, APR and California’s Mortgage Loan Disclosure Statement. There are parts of GFE 2010 that have everyone from bankers, brokers, lenders and their compliance departments in total disagreement on how to implement. Getting it wrong can blow up loans so everyone is being extremely careful. I’m glad to be associated with the largest mortgage brokerage in the country, First Priority Financial, who is taking a lead role in bring these short comings to the attention of HUD and RESPA. As a result, improvements are on the way.

In my next blog, I delve into what I like about the new GFE and what borrowers can expect when it comes to understanding the costs associated with getting a home loan.