2021 FHA loan limits

As expected, FHA announced their increased loan limits for the coming year. Unlike conventional loans, the increase is not as dramatic.

Remember, FHA maximum loan amounts depend on the area where a home is being purchased. The maximum allowed amount in New York City would not be the same as rural Alabama. For metro Atlanta counties, the new limit will be $412,850 (up about 3% from 2020).

To find out the max FHA loan in your area, try this page on HUD’s website.

It is nice the FHA loan limit went up for the coming year, but we didn’t see the same increase conventional loans got… FHA loans basically got a standard cost of living adjustment. Still some is better than nothing.

While home buyers can begin using the raised limits now, I think we can all say 2021 can’t get here fast enough!

Delayed Financing

Let’s say you found a great deal on a home, but there is a problem. The home isn’t inhabitable… the plumbing was stolen out of the home, so there is no running water… there is major roof damage that needs to be repaired, and the current owner can’t/won’t do anything about it… the home was a foreclosure that now has broken windows, smashed doors, missing light fixtures, etc. In any of these scenarios, a bank would not lend money on the home until the home was repaired and could pass an appraisal inspection.

You are fortunate enough to be able to buy the home in cash, but don’t want to part with the money when the home could be financed at historically low interest rates. Sure, you could buy the home in cash. Then do a cash out refinance after owning the home for six months, but the money is gone for six months. Until now…

With a Delayed Financing loan, a buyer can purchase a home today “as is”, and apply for a loan as soon as the next day. In this scenario, a buyer can make a cash offer, get a quick close, and turn around and get their money right back instead of waiting six months. Here is how you do it:

1. The purchase must have been an arms-length transaction.
2. The cash used for the purchase must be appropriately documented.
3. The new loan amount cannot exceed the cost of buying the home.
4. To prevent fraud, a copy of the HUD-1 from the purchase of the home will be required.
5. A title search must show there is not liens on the property.

If the home meets these criteria, in addition to the normal loan approval process, the buyer can get their money back in weeks instead of months.

Have you purchased a home recently that needed work done before the home would pass an appraisal inspection? Do you want to buy a home like this? If you are able to purchase the home in cash, you can get that money back sooner rater than later. If the home is in Georgia, contact me today, and we can get started!

 

Discussing mortgage options

Now that we’ve talked about the aspects of a mortgage payment, let’s focus on the mortgage options. There are so many mortgage options from which to choose – how do you decide which loan is best for you?

To contact any of us at Dunwoody Mortgage Services, click here!

Loan Prequalification – Collateral

In the month of June, The Mortgage Blog focused on each aspect of the prequalification process. We started with credit, moved to down payments, touched on income, and will finish today with the collateral that secures the loan – the home being purchased.

Whether it is a single family home, town home, condo, etc. the condition of the home itself is important in the loan process. FHA loans have much stricter standards when it comes to the condition of the property, so this post will focus on conventional loans.

When looking to purchase a home with a conventional loan, the home must be “livable” in its current condition. “Livable” can be defined using the following descriptions:

• The home is not missing any flooring.
• The home is not missing any light fixtures, light switches, outlets, etc.
• There are no repairs needed to would impact the integrity of the home such as a leaky roof (can damage interior of home and cause mold), missing siding (that can lead to rotting the side walls of the home and cause mold), water standing in the basement/crawl space (again, can cause mold).

If these problems do exist, repairs could be required prior to closing. While borrowers may view some of these as items that can be fixed once they own the home, that is looking at the problem from a different view than the lender. When underwriting a loan, the lender’s perspective on the collateral (the home) is this… the borrower will never make a payment, how do we get our money back? The last thing a lender wants is to finance a home in need of repairs and then be stuck with those repairs if the home goes into foreclosures. Thus the emphasis on the condition of the home.

There are loan programs designed to renovate homes that are missing lights or flooring OR even updating a home. The FHA 203k is a great example, and a loan program that will get its own blog post in July.

Planning ahead is key to ensure that each aspect of the prequalification process is met in order to successfully purchase a home. There are borrowers out there looking to get into a new home in the coming months. Even if the plan is mid to late Fall, it is still a good idea to make sure one’s credit, down payment, and income are in line with the amounts needed for the purchase. The last thing you want to do is assume everything will be OK. We all know what happens when you assume… you can wind up homeless. If you are buying in Georgia, contact me today and I will help get you into your new home before the end of the year!

First Time Homebuyer Mythbusting

The spring market is just around the corner (honestly, it has already started, but let’s just stick with “spring market” for this post), and there will be plenty of buyers out looking for their new home. Some of those buyers will be first time home buyers.

Every year when I work with first time homebuyers, I have to dispel myths about going through the home buying process as a first time homebuyer. With the help of Adam and Jamie, we will bust the three myths I get most often.

OK guys, let’s get to work!

1. I’ve never bought a home before, so I have to use an FHA loan: this can’t be further from the truth. Conventional loans will allow you to buy a home with as little as 5% down and a credit score as low as 620. Unless you want to use the FHA 203k rehab loan, or just don’t have 5% down, you don’t have to use an FHA loan and pay an exorbitant amount each month in private mortgage insurance.

Myth dispelled – if you are hesitating buying a home because you don’t want to use an FHA loan, don’t worry about it. You don’t have to use an FHA loan to buy a home!

2. I don’t have a 20% down payment: Actually, I hear this whether the client is a first time homebuyer or a tenth time homebuyer. As I stated toward the end of last year, you don’t need 20% down to buy a home. Conventional loans only require a 5% down payment. You can even look to use a Lender Paid Mortgage Insurance loan to put 5% down and not pay private mortgage insurance each month. FHA loans only require 3.5% down.

Myth dispelled – you don’t need to wait to buy a home simply because you don’t have a 20% down payment.

3. I don’t have excellent credit: As I mentioned earlier in this post, you can buy a home with a credit score as low as 620. In 2013, if your credit score was down to 620, you would need a 20% down payment. This is no longer the case. Conventional loans can be used to buy a home with as little as 5% down and a credit score as low as 620.

Myth dispelled – you don’t need excellent credit to buy a home.

Now you be in a situation where it is better to save more money for a larger down payment… or it could be better to wait a few months to try and increase your credit score… making those decisions is easier after talking to a professional.

The point of this post is realize that if you are not even thinking of buying a home because your credit is in the mid 600’s or you don’t have 20% down, you don’t need to wait. At least have a phone conversation to see where you stand. If you are buying a home in Georgia, contact me today to get started!

Flip this house

This home is a recent foreclosure we purchased in Lawrenceville.  It was actually listed through our Multiple Listing Service and was originally on the market for $69,000.  We made an offer for $58,000 which was accepted. The inspection revealed a couple of structural issues that needed to be addressed, so we amended our purchase price to $54,800.  For a complete Before & After click here or on the image below.

The renovation took a longer than usual, three weeks instead of two, but not bad considering the amount of work that was done.  The largest contributor to the extra week was the amount of landscaping that was needed.

The yard had eroded over the years due to water run off.  We decided to remove several trees in the front yard, add a rail road tie retaining will in the rear yard and front yard, and we added a tie wall and walk way on the right side.

Cris Abbott, a local contractor, did the work at a very reasonable price. Additionally Cris piped all of our downspouts away from the house.  The balance of the project included the normal things you would expect in a house with deferred maintenance; a new roof, siding repair, new gutters, exterior paint, and we had to side the utility building before painting.

On the inside new light fixtures, plumbing fixtures, new HVAC, plus appliances, painting, counter tops and new vanity tops plus refinishing the hardwoods completed the make over.

By the way; if you have extra money now is a good time to pick up some REALLY GOOD DEALS to resell or to rent out.

Van Purser is a licensed real estate broker in Georgia.  Since1981 he has successfully purchased and renovated over 400 homes.  His expertise is in the area of foreclosures, rehabs and fixer uppers.  Additionally, he has represented hundreds of clients over the years as a broker with Metro Brokers, RE/Max and now with his own firm.  He and his wife, Jeanne, who is also a broker, have been married since 1977.  Van can be reached at 770-623-3313 or by email VanPurser@VanPurser.com

Contingency Reserve Requirements on Renonvation Mortgages

I’m staying with the “renovation” theme from my last several posts. This week I want to address a common question I get regarding one of the requirements on the Fannie Mae HomeStyle Renovation Mortgage, Fannie Mae HomePath Renovation Mortgage, and the FHA 203k Mortgage… “Why do these programs require a 10% contingency reserve?”

The first thing I should do is define a contingency reserve. Fannie Mae and HUD (FHA loans) require a 10% contingency reserve on these renovation mortgages for unforeseen costs associated with the project.

The last thing anyone wants is to get into a renovation project on a tight budget with no additional assets and an unexpected problem occurs. Some potential issues that arise during a renovation cannot really be accounted for until the process is underway. That is why the 10% contingency requirement exists.

The contingency reserve is not an option. Since this is the case, a better question becomes “what happens to the 10% contingency reserve if it isn’t used?”

As anyone who has gone through a renovation project on a home knows, most of the times costs end up going over budget, so it probably won’t be a problem. 🙂 In the event there are funds remaining, usually one of the following occurs with these three programs (203k, HomeStyle, HomePath):

• additional work on the home – in some cases, the contingency reserve could be used to fund additional work on the home. If this isn’t allowed, then the other option is a…
• principal reduction – the remaining funds are used to pay down the loan balance. Depending on the renovation program (and lender originating the loan), the borrower could request a recast of the mortgage. In other words, re-amortize the mortgage to lower the monthly payment
• receive the contingency reserve as cash back – this is typically not an option for the borrower

Contingency reserves can be annoying, but they are definitely needed. As previously stated, the last thing anyone wants is to get near the end of the project and run out of money. What happens then? That is a scenario you never want to face!

Tools for viewing foreclosures

With all of the foreclosures and great deals on the market having the right tools on hand when looking at a property can save you lots of time and money. By knowing the tools and by having them on hand, you will be able to properly evaluate a home on the first visit, resulting in being able to make an offer afterwards, without the assistance of an inspector or engineer, and without needing to return for a second or third visit prior to making an offer.  This alone will allow you to make offers more quickly and will result in more deals going under contract.

A Flash Light
I can’t tell you the number of times would be buyers show up with a pin light on their key ring to look at property.  A heavy duty flash will allow you to examine attics, crawl spaces and basements.  In many case houses do not have utility service on, so no power and no lights.  Additionally, a heavy duty flash light can provide a defense to any one who may be in a home who should not be there.

A Collapsible Ladder
This should be a no brainer.  Many of the collapsible ladders will fit in a trunk, and when extended will provide access to many ranch, split level and split foyer roofs. In addition they are great for entering small attic accesses which do not have pull down stairs.

Binoculars
This is a great tool to have.  It allows you to see from the ground many of the things that you can not see unless you actually get on the roof.  Additionally, it allows you to take a very close look at soffits, gutters, window sills, and of course chimneys.  Just be careful and don’t be looking too closely at the neighbors homes or you may get in trouble.

A Probe
The one I like to have is home made.  Crafted (if you can call it that) from an extend-able painters pole.  Cut the roller holder portion of the paint roller off with a hack saw, and straighten it, you will then have an extend-able probe with approximately a 12-14 inch heavy steel pointed rod on the end of it.  This makes probing around foundations to detect soft spots or cavities in soil a breeze.  Additionally, it provides the ability to extend your reach to test for damaged siding and wood as well as first story gutters.

Camera or Phone for Photos
If you’re like I me, sometimes if I look at several homes I may get them confused.  Taking a few photos will help me recall the property and remember some to the more critical items associated with each property.

25’ & 100’ Tape Measures
Ok the 25’ tape will be used the most. for items such as counter tops, floor covering, windows, and the list go on and on.

The 100′ tape comes in handy for roofs, gutters, some decks, fences and driveways.

An Old Credit Card or Flexible Putty Knife
Talk about a time saver, this is huge.  I can’t tell you how many times I have gone out to look at house and there was no lock box, which means no key. By having one or both of these tools you will more than likely be able to push the edge between the door and door frame so that as you slide it down it will compress the door latch, allowing for the door to open.  Talk about a time saver, another trip out could be at least two hours and another day, and might cause you to miss the cut off time for an offer.

A Marble & a 4’ Level
OK, I know it sounds stupid, but using a marble is a great way to quickly determine if a floor is not level.  Believe me, you set it down on tile or hardwood and if it takes off, you better take a closer look at the structure below.

As for the 4’ level, it too is great for determining if floors are level and if door frames and walls are plumb.  I find it very helpful in checking out block or poured wall foundations for deflection or leaning.  Oh yea, it is great for determining if chimneys are pulling away excessively from exterior walls.

A Couple of the Basics
Don’t’ forget a pair of pliers and a can of WD-40.  The pliers are great for pulling up edges of carpet to see if hardwoods are underneath, and the WD 40 is great for spraying door knobs and keys so that they will actually unlock the doors.  You can’t depend on anything working the way it should.

Have fun with the tools we have discussed.  And do know, I am not suggesting or advocating your use of these tools in the ways I have described, however if you choose to use them in a similar way, I can assure you, you will save time and money.

Fannie Mae HomeStyle Rehab Loan

I regularly receive requests for loan programs that will allow borrowers to make repairs on a home and roll those costs into the loan. Due to the financial crisis and the risky nature of these loan programs, conventional rehabilitation loans virtually disappeared.

The only consistent option was the FHA 203k program, which is a great loan program, but only allows cosmetic/non-structural repairs on a buyer’s primary residence. It would be great if there was a program that allowed both buyers and investors the flexibility needed to do more than just cosmetic repairs… and now there is!

Introducing the Fannie Mae HomeStyle loan program. This is a renovation program like the FHA 203k program, and they share some similar traits.

• Both programs allow for cosmetic remodeling/repairs
• The funds needed for the work on the property is rolled into the loan
• Available on primary residences for purchases & refinances
• Work must be completed by a licensed contractor

There are similarities, but definitely note the differences. Fannie Mae HomeStyle:

• Available for borrowers (10% minimum downpayment) and investors (20% minimum downpayment) on purchases and refinances
• Structural repairs/changes/improvements allowed
• Luxury items such as pools, hot-tubs, fences, etc. allowed
• minimum repair amount of $5,000 required

FHA 203k:

• only 3.5% down payment required
• No minimum repair amount required
• Available for primary residence purchases & refinances only
• No structural repairs/upgrades OR luxury items allowed

Who can benefit from either of these loan programs? Anyone looking for a loan program that will allow you to knock out a wall or two OR investors looking for a way to cover remodeling costs OR even someone looking for a way to pay for carpet and paint in their new home.

If this is you, program options are now available! Don’t hesitate to contact me to learn more or get prequalified for either of these great programs.