Debi Copfer, Loan Officer-Utah home loans

But I want to look at the house before I get pre-approved….just in case I don’t like it…

How many times has a Real Estate Agent listed a home and then gets a call from a prospective buyer that goes something like this,

“Hi, this is Bob and I want to take a look at the house you have on Kengsington Ave.”

“Great, I’d love to show it to you the house on Kengsington is a great house,” says Mr/Mrs Real Estate Agent. “I just need to ask you a couple of questions first. Have you been to a Lender and have been pre-qualified?”

“Um…No I haven’t, but I have great credit and money down so I know I’ll qualify. I just want to see the house to see if I really like it and if I want to buy it I’ll meet with a Lender then.”

That’s what they all say, thinks the Agent…..

So, what is the problem with the above conversation between a person who really wants to see the house and the Agent? Let’s try another example…..

“Hi, this is Roberta and I am standing in front of your house on Ball Street and it looks like a great house, can you meet me here so I can get inside and see if I want to buy it?”

“Sure,” says Mr/ Mrs Agent, “The house on Ball Street is a great house and I’d love to show it to you, let me just ask you a couple of questions first. I only show homes to people who can qualify for the loan, have you been to the Lender yet to get pre-approved?”

“Um, no, I haven’t. But, I’m not sure how my credit looks, my boyfriend just left me and said he was going to make the truck payments and I just found out he didn’t, and I co-signed for him, and when he left he emptied out the bank account..the jerk.” Tears start to roll down her cheeks. “I just got kicked out of our apartment because once again, he said he left a check for our landlord before he left and now I found out he didn’t and the check he wrote last month bounced. I don’t have a job. So, you see I really need a place to live.”

The Agent politely gets off the phone…..

In both of these cases it is so important that you get pre-qualifed from a professional Loan Officer. The Agent need to know they have a ready and willing buyer, one that can put the offer in if they like the house. The reason is below:

“Hi, this is John and I just saw the house you have listed on Kengsington Ave and I would like to get inside, when can we set an appointment to see it?”

“Yes, the house on Kensgington is a great house.” Says Mr/ Mrs Agent. “I’d love to show you, I only show my listings to people who can qualify for a loan, have you been to a Lender yet?”

“Yes, as a matter of fact I just left my Loan Officer’s office, I have the pre-qualification letter in my hand.”

“Great, how about we meet at 4:00 this afternoon, does that time work for you?”

The house I want to buy needs work or repairs that the Seller won’t or can’t pay for before I close. What do I do? FHA has the answer….203(k) Streamline loan.

Many times you find the perfect home at a great, well a really fantastic price, but it needs work.

You’ve gone back and forth with the Seller and he/she say’s they are selling it “AS IS” which we all know means, “you can buy it, but you are getting it exactly how you see it….take it or leave it.”

An FHA 203(k) Streamline loan is there for you. What this type of loan will do for you is allow you to buy the home the “way it is” and then the 203(k) streamline loan will then give you enough money to do the repairs and fix-ups you need and desire. Win-Win for everyone!!

FHA 203(k) Streamline gives you $35,000 to make improvements, and make sure that after the work is done you are still within FHA loan limits for the area you are buying in.

Guidelines to follow for 203(k) Streamline:

This is for a single family up to a 4 plex Owner Occupied Only.

FHA allows 3.5% down payment

FICO Score 620 or higher

30 yr fixed rate

You can buy a home or refi rate and term the one you own

Must start the work 30 days from closing

$35,000 max on the amount of repairs allowed including labor & materials

Have 6 months to compete the work

What is acceptable for a 203(k) Streamline

You can use the money for electrical, plumbing, roof, rain gutters

Furnace and air conditioning

Minor remodeling of kitchens such as cupboards, appliances including range, fridge, dishwasher, microwave, washer and dryer

Painting, flooring and carpet

Replace windows

Basement finishing that doesn’t include structural repairs

What doesn’t qualify for a 203(k) Streamline

Major remodeling

New Construction such as adding on a new room

Repairs to the structure such as foundation

Moving walls

Investment Property

Why does FHA keep changing their guidelines? Just when we get used to the qualifying guidelines on an FHA loan, the guidelines change and then we have to start all over again.

It was only just a couple of months ago that FHA only required a 3% down payment, now it's 3.5%. Not that another half of a percentage is a big deal, but to some folks who have been saving a long time to get the 3% now have to save longer to get the full 3.5%.

One good thing about the FHA down payment requirement you can still get a gift from a blood relative. They just have to show they have the money to give you and that can be accomplished with a signed "Gift Letter" and a Cashier's Check for the exact amount you need.

The other big change is the UFMIP or Up Front Mortgage Insurance Premium. The UFMIP is the money the borrower will pay on top of the loan amount for getting an FHA loan. This is in addition to the Monthly Mortgage Insurance or MIP.

The UFMIP used to be 1.75% of the loan amount, now it is 2.25%. On a $250,000 loan amount that calculates to $4,375.00 for 1.75% and now 2.25% increases it to $5,625 a difference of $1,250.00.

Of course that amount is added to the loan amount and not expected to be paid in the closing costs, but still it will add a few extra dollars to the payment in the end.

It makes you wonder if FHA feels that the changes and increases are due to the default and foreclosure rate of existing FHA mortgages going on in the down economy and they have taken such a hit that they need to recoup their losses somehow... Isn't it funny how we all end up paying for it in the end.

I must say that FHA is still one of the best loans out there for the borrower that doesn't have the full 5% that Conventional requires and they still allow for a lower credit score of 620. Conventional really likes a FICO score of 700 and higher, and actually they lean on the higher 700 side!!

Should you pay Discounts Points to buy your rate down? That is just such a great question and the answer like all other mortgage questions is, it depends. Now I know you don't especially like hearing "it depends" because that doesn't give you a clear cut answer.

So let's explore the now technical term, "it depends".

When you are looking to buy your rate down to what you think is a better rate or one that you can easily qualify for look at these factors:

A Discount Point is typically 1% of your loan amount. So if your loan amount is $250,000 your Discount Point would be $2,500. Now just because you paid 1% for your Discount Point, that doesn't necessarily mean you will be buying your rate down by 1%.
The percentage which equals to a dollar amount that you have to pay to buy your rate down is determined by the cost of that particular rate on any given day. You will need to ask your loan officer what it would "cost" to buy the rate you want to buy.

One way you can save when buying down your rate is to have the Seller pay for the buy down. This is negotiated at the time you are putting in the offer. You can always go back and ask the Seller to contribute to your closing costs after the offer is accepted, but it is much harder.

Tips to look for when deciding if you should buy your rate down with a Discount Point:

**You should be buying down your rate if you cannot qualify for the loan any other way. (If this is the case you can always look for home that doesn't cost as much, thus giving you a lower loan amount and making it easier to qualify..something to think about)

**You should be buying down your rate if you are going to stay in the house for longer than 5 years and then the cost of it would then be worth it. Any shorter of a tme frame and it doesn't make since to pay all of that extra money.

**You should be buying down your rate if the Seller is going to pay for it. Called Seller paid closing costs.

Talk with your Accountant, the money you pay to buy for a Discount Point to buy your rate down should be tax deductable. Make sure you discuss this with your Accountant, he/she will be the expert on this.

Mortgage Insurance on Conventional loans, myth or fact in Salt Lake City? Mortgage insurance is that pesky extra amount of money you have to pay each month in your payment just because you didn't have enough money down.

More money down you ask? You just barely had enough money down to qualify for the loan you were going after. Still you just don't understand why they are tacking on so much extra to your payment each month.

You ask: "Why do I have to have it and how can I get out of paying it?"

Tips on the truth about MI known as Mortgage Insurance and Monthly Mortgage Insurance:

1. Mortgage Insurance companies step in and "insure" the Lender not you against default or foreclosure. This happens when you don't have the required 20% down to avoid MI on a Conventional Loan. If you go belly up on your loan and you have to give the house back to the bank, the mortgage insurance company will pay the lender their insurance money and then through the Lender will start the foreclosure process.

Lenders will give you a loan all day long "without" Mortgage Insurance if you can show you have the 20% down.

2. Mortgage Insurance companies took a big hit when the economy spiraled down and thousands of homes went into foreclosure, so they were forced to change their guidelines and now it is harder for a borrower to get Mortgage Insurance.

You must have a low debt ratio and a really high FICO score above 700 to even get Mortgage Insurance on a Conventional Loan.

3. Yes, they took MI away from Investment property loans so that is why you must have at least 20% down if you want to get a rental or investment property. Before you could go all the way to 100%, but those days are long gone thanks to all of the default loans.

4. You can avoid Monthly Mortgage Insurance on Conventional loans by paying an Up Front Mortgage Insurance. This is a lump sum so you won't have to pay it monthly. Depending how long you are going to be in your home will determine if Up Front MI is a good idea.

In other words, you don't want to pay a lump sum if you are only going to be in your home a couple of years. You need to be in there a long time to recoup your money.