Can't Refinance? Can't Get a Loan? Here's why 2 Million had the same problem in the past year...

Today is some useful information for those of you that are considering applying for a loan, have recently applied for a loan or would just like to know how the process works.

Half of refinance applications are abandoned or rejected, as are 30 percent of purchase mortgage applications, according to the Mortgage Bankers Association. All told, the Federal Financial Institutions Examination Council (FFIEC) says that well over 2 million mortgage applications were rejected last year.


Want to avoid falling into that number? It's tough -- especially in light of the fact that mortgage lenders have become increasingly restrictive in terms of their lending guidelines since the housing market crash.

Here, as a cautionary tale and primer on what to expect, are the top six reasons mortgage lenders reject applications.

1. Income issues. Most failed applications falling into this category have income too low for the mortgage amount they are seeking; often, a spouse's credit issues can create this problem, too, as the income the spouse plans to actually chip in toward the mortgage cannot be considered by a lender.

But increasingly, the recent vagaries of the job market are also causing this issue, as people who have changed their line of work or have changed from salaried employee to freelancer over the last couple of years can also have their home loan applications rejected based on income.

2. Muddled money matters. If the mortgage for which you're applying plus your monthly payments on credit card, car and student loan debts will comprise more than 45 percent of your total income, you could have problems qualifying for a home loan. You might also run into problems if you rely too heavily on bonuses, overtime, cash wages or rental income -- all of these can be difficult or impossible to get a mortgage bank to consider, and if they do, they might not take all of it into account.

3. Credit issues. Today, the mortgage-qualifying FICO score cutoff falls somewhere between 620 and 660, depending on which lender and which loan type you seek. More than one-third of Americans, by some numbers, have credit scores too low to qualify for a home loan. Even if your credit score is high enough to qualify, if you have any late mortgage payments, a short sale, a foreclosure or a bankruptcy in the last two years, loan qualifying could be difficult to impossible.

4. Property didn't appraise. Since the whole industry had its hand (among other things) smacked for allowing home values to skyrocket in a very short time, appraisal guidelines have tightened up -- some would say, even more than overall mortgage guidelines. So, it is increasingly common to have the property appraise for a price lower than the sale price negotiated between the buyer and seller.

This is especially common in the refinance realm, as well over a quarter of U.S. homes are now upside-down, meaning the mortgage balance owed is greater than the value of the home. (If you're trying to refinance an upside-down mortgage, consider the FHA Short Refi program -- contact your lender or get referrals to any mortgage broker who makes FHA details to apply.)

5. Condition problems. With all the distressed properties on the market, and with most nondistressed sellers barely breaking even, more home-sale transactions than ever are falling apart due to condition problems with the property. Many lenders will not extend financing on homes where the appraiser points out problems like cracked or broken windows, missing kitchen appliances, electrical problems, or wood rot.

And in the world of condos and other units that belong to a homeowners association, if more than 25 percent of units are rented (rather than owner-occupied) or more than 15 percent are delinquent on their HOA dues, new applications for refinance or purchase mortgages on units in the development are likely to be rejected.

6. Technical difficulties with application. The days when lenders just took your word for it are long, long gone. Applications with incomplete or unverifiable information are doomed.

If any of these mortgage loan application glitches arise in your homebuying or refinancing process, it's critical that you connect with your mortgage professional, be it your banker or mortgage broker, to determine what course of action to take.

In some cases, it might be as simple as buying a stove you find at Craigslist and installing it before escrow closes; but with income issues your mortgage pro will need to help you determine whether it makes sense to pay some bills down, get a co-signer, or even wait six months so your income documentation will qualify.

Advice from Warren Buffett on the Real Estate Market

Warren Buffett, the man the myth the legend.  Commonly known as the worlds number one investor.  A man that despite his means, lives a very humble life.  Meeting him, you'd never know he was a billionare and known as the Oracle of Omaha.  His wisdom and investing strategies are such that when he speaks, Wall Street listens.  Well with his influence over the masses it sure would be nice to hear his thoughts on the housing market wouldn't it?  Well here he shares some tips for us all to buy into and learn from if you feel his advice is warranted, which i do :)

1. The Basic Premise of Home Ownership -- That Homes Increase In Value Over Time -- Is Sound

Last spring, the Congressional Financial Crisis Inquiry Commission called Buffett in for an interview. He was asked to explain some of his bubble-era investment decisions, as well as to give his take on what in the heck had happened to the economy. In the process, Buffett expressed his belief that the housing bubble was inflated by an irrational, widespread belief that home prices would only ever go up -- an extreme corruption of a generally valid premise. "It's a totally sound premise that houses will become worth more over time because the dollar becomes worth less," Buffett declared.

The sound premise, Buffett explained, got distorted and eventually caused the housing crisis when Americans started buying multiple homes to cash in on what they assumed was guaranteed appreciation, taking out "liar's loans," buying homes with no down payment and with unaffordable monthly payments -- and lenders let them -- all because of the assumption that prices could never go down.


Clearly, this assumption was wrong. As Buffett said in an earlier shareholder's letter: "A pin lies in wait for every bubble."


2. Buy Low (And Now Would Be a Good Time for That)


Buffett writes a letter to Berkshire Hathaway's shareholders every year that is chock-full of his review of the company's fortunes (literally) over the preceding year, his analysis of the stock market and the economy in general, and his smart, plain English tips on life and money and on life.


In last month's annual shareholder letter, Buffett addressed the industry-leading 2010 performance of one of his company's holdings, which sells and finances manufactured homes. During that discussion, the money maven declared that now would be a sensible time to buy a home, in light of record-high affordability: "Home ownership makes sense for most Americans, particularly at today's lower prices and bargain interest rates."

And Buffett didn't stop there. He pointed out his own tenure as a homeowner as an example. "All things considered, the third-best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks," he wrote. Then, to clarify for the readers who'd want to know what numbers one and two were, Buffett elaborated: "The two best investments were wedding rings."


3. But Don't Wait Too Long To Take Advantage of Low Prices


Buffett wrote a 2008 Op-Ed in the New York Times, explaining that buying while prices are low is stressful, because economic markets are volatile and impossible to predict in the short term, even for him. So, when conditions make an investment -- in stocks or in a home -- particularly advantageous, Buffett says not to hesitate too long. Painting a vivid verbal image to illustrate the likelihood that market prices "will move higher, perhaps substantially so, well before either sentiment or the economy turns up," Buffett warned: "if you wait for the robins, Spring will be over."

4. The Smart Way to Own a Home Has Three Elements


Those elements are: fixed mortgage, affordable payments and long-term hold. Detailing why his manufactured housing holding has done so much better than the rest of the real estate market, Buffett pointed out that "[o]ur approach was simply to get a meaningful down-payment and gear fixed monthly payments to a sensible percentage of income. This policy kept [the company] solvent and also kept buyers in their homes." And that was the ultimate difference between smart home-buying and the home-buying that led to the real estate bubble and the foreclosure crisis.


"If home buyers throughout the country had behaved like our buyers, America would not have had the crisis that it did."


 In the stock world, Buffett has been quoted as advising investors to "only buy something that you'd be perfectly happy to hold if the market shut down for 10 years." Well known for practicing what he preaches, we can presume a long-term hold strategy would also be an integral part of Buffett's advisory to homeowners, too. Despite his net worth of somewhere around $50 billion, according to the latest Forbes tally, Buffett still lives in the 5-bedroom Nebraska home he bought 52 years ago for $31,500.

5. Buying Your "Dream Home" May Lead to Nightmares


In the 2010 shareholder letter, after he pointed out the right way to own a home, Buffett went on to caution Americans against the wrong way. When dream homes are bought for ever-escalating prices, using rapidly adjusting mortgage payments and unsustainable monthly costs vis-a-vis the homeowners' income, the dream can go bad quickly. Buffett warned, "a house can be a nightmare if the buyer's eyes are bigger than his wallet and if a lender -- often protected by a government guarantee -- facilitates his fantasy. Our country's social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford."

I can't agree more with Mr. Buffet that now is a wonderful time to buy and that timing the market perfectly may not be feasible.  If you are currently renting or thinking about moving into a larger home, the opportunities that we are seeing daily are amazing and shouldn't be ignored. 

If you find this blog useful or beneficial, please as always forward to any friends or family that may also benefit.  Thanks and have a wonderful day! :) Ben

Flaws in Obama's Mortgage Reform Plan?

Attached is a great article to help you understand better the administrations mortage reform plan and potential flaws in it.

Scaling back housing finance: Fallout feared

Flaws in Obama's mortgage reform plan
By Jack GuttentagInman News™
March 07, 2011
Editor's note: This is Part 1 of a multipart series.

The document the administration recently sent to Congress outlining its game plan for housing finance has both scale-down and ramp-up thrusts. The scale-down thrust, comprising most of the report, involves shrinking the federal government's involvement in the market.
The ramp-up thrust would create a new federal program designed to support the private market. This article is about the scale-down.

Backdrop
The point of departure for this proposal is a post-crisis housing finance system in which only about 10 percent of all new home loans are strictly private. The remaining 90 percent are either acquired by Fannie Mae or Freddie Mac, or insured by the Federal Housing Administration (FHA).

Further, qualification requirements set by the strictly private market are far more restrictive than they were before the crisis, which is the reason their market share is now so low. Before the crisis, risk-based pricing was widely practiced, making loans available over a wide range of risks.

Today, only a sliver of risk-based pricing remains. For the most part, risk-based pricing has been replaced by risk cutoffs. At many lenders, borrowers with a credit score of 800 have to put 20 percent down, and borrowers who put 40 percent down still need a 700 score to qualify. Some lenders will go to 10 percent at 680, but limit the loan size.

Fannie Mae and Freddie Mac have tightened their requirements, but by much less than the strictly private sector. The agencies today will accept a credit score of 620 at 20 percent down, and 680 at 5 percent down. However, risk-based pricing is extensive and many borrowers with mediocre credit, small down payments or both, choose to opt out.

The average down payment on new loans is about 35 percent, and the average FICO is about 765. The agencies have also tightened their documentation and appraisal requirements significantly.
FHA has the most liberal requirements, which are little changed from what they were before the crisis. FHA accepts 3 percent down with a credit score of 580, though many lenders require higher scores so that they won't be tarred with originating too many loans that default. FHA has also increased its insurance premiums.

What scale-down means
The crux of the Obama administration's scale-down plan is a gradual phaseout of Fannie Mae and Freddie Mac, combined with a reduction in the scope of FHA operations. The ultimate goal seems to be a system in which the strictly private market would account for about 85 percent of the traffic, and FHA would have about 15 percent.

The report suggests a number of ways of accomplishing this, including reductions in the maximum qualifying loan size at all three agencies, and increases in insurance charges. The first reduces the number of borrowers who qualify, while the second forces price increases by the agencies that would make the strictly private market more price-competitive.

Implications and consequences
The volume of risky loans, already down sharply from the post-crisis tightening of qualification requirements, will shrink further as the scale-down proceeds. Because a large proportion of risky mortgages are generated by disadvantaged groups, this approach constitutes a reversal of what had been public policy for at least four decades, which was to encourage homeownership among such groups.

Sometime this year, the regulatory agencies will promulgate new rules implementing provisions of the Dodd-Frank bill that require them to define "qualified residential mortgage" (QRM).
These are low-risk loans that exempt originators from having to assume 5 percent of the risk of loss. The split in the market following implementation of this rule will further disadvantage weaker borrowers, since non-QRM loans will carry a higher price if they are available at all.

Softening the blow
The report recognizes the need to go slow and cautiously, but offers no concrete ideas on how to soften the blow. Here are two.

1. The administration ought to set up a task force to determine whether the existing regulatory structure, including the bank examination process, is unduly constraining the strictly private market. If government wants lenders to expand into the space vacated by Fannie, Freddie and FHA, government ought to make sure that it has not itself constructed roadblocks to such expansion.
2. FHA should extend its tentative steps toward risk-based pricing to a comprehensive system in which the insurance premium on every loan reflects the risk of loss to FHA of that loan. This will help keep FHA financially sound, reduce concerns if FHA is pressed to expand into some of the space vacated by Fannie and Freddie, and neutralize political pressures to liberalize terms unduly.

Thanks to Guy Cecala of Inside Mortgage Finance.

Next week: The ramp-up proposal.

Well, please feel free to share your thoughts and insight on the above. Also, please share this and any articles of mine that you feel may benefit friends or family! Thank you and have a wonderful day! Ben

Springtime is Around the Corner....Buying? Selling?

Is it possible that after the worst snow storm in over a decade that we can really be talking or even thinking about Spring? Is is possible that in only a matter of a few short weeks that Mother Nature will shine down on us and bless us with warmer weather and melting snow?

I for one am ready for Spring and can only hope that we've seen our last of "major" snow falls for the year and I'm hopeful that warm weather and all the optimism of spring is around the corner. The realist in me however realizes that its very likely we may have a couple months before this happens.

So When is Spring?

We all have our own opinion on this but is it March, is is April or May? From a real estate broker's prospective the spring market is March. Its the month that we have glimpses of warm weather, then the next day may revert to cold and snow. The days lengthen however and there just seems to be a better all around mood amongst people as we are seeing that we are truly in the fourth quarter of a long winter.

What does this mean for Sellers?

Springtime historically is a time that many home sellers that are currently on the market may see a bump in activity and its a time when home sellers that had prepared over the winter time are set to put their home up for sale.

Putting a home up for sale in the dead of winter often has many obstacles to it compared with waiting until Spring.

1. Your competing with Holidays - Christmas, Thanksgiving, New Years....Buyers have too much on their plate to find time often to go home shopping.
   


2. Snow & Bath Weather - Lets face it, when its Minus 5 degrees there aren't many places most people would rather be when they aren't at work than wrapped up in a blanket at home.



3. Spring is Nearing - many buyers expect a larger number of homes to be available come spring so many decide to make plans for a more thorough and expansive home search once winter nears an end.

What Does Spring Mean for Buyers?

Spring is such a great time of year for so many reasons but for those looking to buy a home its now the time that you generally are seeing many options hit the market. Didn't find what you were looking for the previous few months? Now may be the time that the perfect home hits the market!

The downside for buyers if any with a spring market is that sellers do often have optimism at the highest and may put their home on the market a tad high. I've seen this more often than not but on the flip side, for those that may have missed the buyers they were hoping for during winter they may be getting more aggressive and will lower their prices as competition heats up.

No matter how you slice it, the upcoming Spring Season is always an exciting one for the Real Estate Market.

If your considering selling your home, now is the time to get it prepared. Meet with a professional realtor like myself and get advice on final "to do's" and set a goal for the completion of your projects.

If your hoping to buy a home, now is the time to meet with your banker or a mortgage broker. If you need someone, I have a few that I highly recommend that can be of assistance. Getting pre-approved to purchase a home is easy and painless. If your not quite ready to buy, it still may be a good idea to meet with a lender and discuss options and determine if your credit is where it needs to be in order to purchase a home in the future. If its not, they can often help advise you on what steps to take in order to clean up your credit.

I hope you found today's blog helpful! If you or anyone you know may benefit from my blog please feel free to forward this to them. Additionally, I'm available for any advice specific to your needs so please don't hesitate to contact me direct if you'd like.

Thanks for reading my blog and happy house-hunting/selling! Ben

Buying Your First Home

Buying Your First Home

Finding the right first home starts with a price range and a short list of desirable neighborhoods. But there are many other factors you'll need to consider before investing in what may be your biggest asset.

Before You Start

• Grab your current household budget so you can consider your financial situation and your ability to make mortgage payments.


• Ask family and friends if they can recommend experts, like a lawyer and an inspector, who can help with the home buying process.


• Think about your lifestyle and how it might affect your choice of home and neighborhood.


• Do a little research on current home prices in the neighborhoods you plan to target.
  

Buying Your First Home

Home ownership is the cornerstone of the American Dream. But before you start looking, there are a number of things you need to consider. First, you should determine what your needs are and whether owning your own home will meet those needs. Do you picture yourself mowing the lawn on Saturday, or leaving your urban condo for the beach? The best advice is to look at buying a home as a lifestyle investment, and only secondly as a financial investment.

Even if housing prices don't continue to increase at the torrid pace seen in recent years in many areas, buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child's education. There are also tax benefits.

Like many other investments, however, real estate prices can fluctuate considerably. If you aren't ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you'll need to determine how much you can spend and where you want to live.

How Much Mortgage Can You Afford?

Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Mortgages that conform to Fannie Mae's standards may carry lower interest rates or smaller down payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.

The housing expense ratio compares basic monthly housing costs to the buyer's gross (before taxes and other deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross income.

The total obligations to income ratio is the percentage of all income required to service your total monthly payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including basic housing costs, should not exceed 36%.

Many home buyers choose to arrange financing before shopping for a home and most lenders will "prequalify" you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing.

In addition to qualifying for a mortgage, you will probably need a down payment. The 28% to 36% debt ratios assume a 10% down payment. In practice, down payment requirements vary from more than 20% to as low as 0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate. Lowering the down payment increases leverage (the opportunity to make a profit using borrowed money) but also increases monthly payments.

How Much Home Can You Afford?

Bob and Janet's combined income is $50,000 a year, or $4,166 a month. Their housing expense ratio of 28% yields a monthly maximum of $1,166 for mortgage, insurance, and taxes ($4,166 x 0.28 = $1,166).

Their total debt ceiling of 36% is $1,583 (4,166 x 0.36 = $1,500). Their monthly debt payments include a $200 car payment, credit card payments of $100, and student loan payments of $200. Subtracting this total of $500 from the $1,500 permitted leaves $1,000 in monthly housing payments.

Costs of Buying a Home

Many home buyers are surprised (shocked might be a better word) to find that a down payment is not the only cash requirement. A home inspection can cost $200 or more. Closing costs may include loan origination fees, up-front "points" (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first month's homeowners insurance, recording fees and attorney's fees. In many locales, transfer taxes are assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs. All this will probably add up to be between 3% and 8% of your purchase price.

Ongoing Costs

In addition to mortgage payments, there are other costs associated with home ownership. Utilities, heat, property taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Make sure you understand how much you are willing and able to spend on such items.

Condominiums may not have the same costs as a house, but they do have association fees. Older homes are often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home, be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the neighborhood.

Choosing a Neighborhood

Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes, transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza shop next door might alter your property's future value. On the other hand, you may want to run a business out of your home.

Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor in the cost of repairs or upgrades that such a house may need.

Finding a Broker

If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and can be a valuable source of information concerning the home buying process. Ask lots of questions, but remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller and not to you. An alternative is a so-called buyer's broker. This individual does work for you, and therefore is paid by you. Seller's brokers are paid by the seller.

Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties for sale by most major brokers across the country. Brokerage commissions average 5% to 7% and are split between the listing broker and the broker that eventually sells the home. Don't be surprised if your broker is eager to sell you their own listing since they would then earn the entire commission.

Home Buying Costs

Down Payment 0% - 20% of purchase price
Home Inspection $200 - $500
Points $1,000 and up for 1% - 3%
Adjustments 3% - 8% of purchase price

Once you've determined a price range and location, you're ready to look at individual homes. Remember that much of a home's value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you.

Although it can be difficult, try to remember that you will probably want to sell this home someday. The more research you do today, the better your decision will look in the years to come.

Summary

· Buying a home can mean building significant value through the years.

· Think carefully about how much you can afford to spend and consider borrowing guidelines like those used by Fannie Mae.

· Prequalifying with your lender is a good way to determine how much house you can afford.

· You will need cash for a down payment and closing costs. Generally speaking, the higher the down payment, the lower the interest rate and monthly mortgage payment.

· In addition to your mortgage payments, you will also need to consider the other costs of home ownership.

· Schools, taxes, services, crime rates, transportation, and zoning are important considerations when selecting a neighborhood.

· Brokers usually represent the seller, but they can be valuable sources of information for buyers as well. A broker that belongs to the Multiple Listing Service will be able to offer a wider variety of homes to choose from.

· Remember to consider resalability when buying your home.

Checklist

• Update your household budget so you can begin to realistically assess how much home you can afford. Be sure to factor in all your monthly income and all the expenses that may come with a home.


• Add up any savings you could use toward a down payment, and decide whether you need to save more before you start house shopping.


• Start talking to lenders about your options for prequalification and preapproval.