America’s Family Financial Expert Ellie Kay
House Buying Guide 2010 We lived in eleven different military houses in the first thirteen years of marriage. We weren’t exactly thinking about the American dream of owning our own home, we were just satisfied if the carpet came with the house and we could get enough bedrooms to have the kids only sleep two to a room! But, eventually, we slowed down our military moves long enough to buy a home and wowser! It was worth the wait! Whether you are a renter or existing homeowner, you may be in a position to ask a very common question in today’s economy—is now a good time to invest in a home? Here are some ideas to help you determine the housing climate for your unique situation. Dark Clouds Rising – Foreclosures and Property Values Last year ended on a positive note for home sales, as those transactions ran at the highest pace in two years. Those sales were fueled by government incentives and low interest rates. While the housing market is on the cusp of recovery, most experts warn that it’s not there yet and the buyer should proceed with caution. Foreclosures are still expected to be high and are predicted to climb to 1.9 million in 2011, outpacing 2009’s total of over 200,000. Not only do we have a bad forecast for foreclosures, but the weather for property values improving is not sunny either. If you invest in a home, it will need to be a home you keep for three to five years because the value is not likely to rise enough to be cost effective otherwise.
The Perfect Storm : Interest Rates and Unemployment Interest rates have hovered around 5% for the last six months and by this time next year, they could be as high as 9%. In that regard, buying a home while interest rates are still relatively low is a legitimate concern, because they have no where to go but up, up, up! Another factor is unemployment which is expected to remain well above 9% for the rest of the year. If you are military and plan on staying in the military, then this would not have a great impact. However, if you plan to separate and find a new job near the house you just purchased, then this is not good news and you need to take a second look at whether you should commit to a new mortgage. If the mortgage payment is dependant on that second income, then it becomes a riskier endeavor to take the plunge in the housing market with continued unemployment predictions.
Scattered Clouds – Government Programs and VA Loans Even though the first time home buyers tax credit and other government induced incentives ran out on April 30th, there’s still a good website to go to in order to get assistance on what federal program you may qualify for in regards to mortgage modification and refinancing. There are 7 to 9 million people who may benefit by going to MakingHomeAffordable.gov. There is a self-assessment tool where you can discover if you qualify to get free mortgage counseling from a HUD approved counselor. Page 1
According to VA data, there are 23.8 million U.S. Veterans and less than 10 percent of them—2.1 million—have VA loans. “A VA loan is very attractive to most mortgage brokers” says Daniel Chookaszian, the managing mortgage planner at American Street Mortgage Co, who specializing in U.S. Department of VA loans. He adds, “VA loans have looser underwriting standards than conventional and even Federal Housing Administration (FHA) loans. With a VA loan, veterans can get 100 percent financing without private mortgage insurance (PMI) and interest rates around 5 to 6 percent.” The other advantage is that sellers are allowed to cover all closing costs, prepaid items and discounts. This lets borrowers essentially walk into their new home with no downpayment, no closing costs and a 30 year fixed rate with no mortgage insurance.
Clearing Skies – Housing Inventories In many parts of the country, home prices are so far below their peak that millions of homeowners owe more on their homes than they’re worth. This means that prices are continuing to drop, according to Moody’s Economy.com and may end up down from $170,000 median price in the last quarter of 2009 to a 2010 third quarter low of $146,500. This means that it continues to be a buyer’s market in terms of value. Therefore, the current housing inventories are in your favor if you’re in the market to buy a home, have relative job security, and are assured of longevity (owning the property for 3 to 5 years). Plus, with values expected to rise at the beginning of 2011, the home you buy low, is likely to increase in value almost as soon as you close the deal!
Sunny Days – The Dream Come True There is some more good news if you are in the market to buy—chances are good that your lender is going to do everything they can to make sure that you can afford your new mortgage. In the housing boom, before 2006, there were more lenient lending standards for loans and it led to the housing bubble burst. Consequently, the loans that are being originated are better quality and you will have to be a good credit risk to qualify for them. This means that if you buy in the current lending climate, you are less likely to face a foreclosure—the primary exception (as we discussed earlier) being a job loss or medical catastrophe.
And In Closing… Get Free Guides
Go to the HUD.gov, FederalReserve.gov and Federal Trade Commission at FTC.gov websites where you’ll find free guides to mortage closing costs.
Get Away From “No Closing Costs”
What these mortgage lender ads really mean is that they’ll finance your closing costs for you and you’ll have no out of pocket costs. You will pay more for these in the long run, because of the added interest. Plus, you might be less likely to search for closing cost savings, so avoid this bait and switch trap.
Get Good Faith
When searching among mortage lenders for the best rate, be aware that they are required by law to give you a good faith estimate within three days after you apply for a loan.
Get GFE Savings Estimates
The GFE, which lists estimated fees you’ll pay at closing, is divided into numerical sections. Look in the 800s and 1100s for fees that may be negotiable to save even more. For example the 800 section lists administrative fees and those for services your lender contracts for you with everything from checking your credit to appraising your property. Look for double dipping and inflated fees Page 2
Get Smart on Haggling
If you’re unsure about closing cost fees, then ask for a discount and be prepared to haggle lightly. Rather than going line by line in your negotiations, it will go smoother for you if you let the lender know that you are a comparison shopper and you’re specifically looking at the price differences among closing costs before you decide where you’ll get your loan.
Get Your HUD-1 Early
Request this form the day before settlement day. Federal law requires lenders to give mortgage applicants a copy of their settlement form at least one day before closing, but many won’t give it unless you ask for it. Compare the HUD-1 with your good faith estimate and bring any errors to your lender’s attention.
Get Ellie’s Scoop
For more specific info on closing costs, go to my blog at entitled “Buying a Home: It’s Easy to SAVE BIG on Closing Costs. ”
Ellie Kay is a regular expert on national television with ABC NEWS NOW’s Money Matters and Good Money shows. She is also a national radio commentator, a frequent media guest on Fox News, and CNBC, a popular international speaker, and the bestselling author of fourteen books including her newest release, The Little Book of Big Savings (Waterbrook, 2009) For money savings links, or to view Ellie’s blog, go to www.elliekay.com
Page 3