Hector Amendola

FHA has long been known as something Realtors® seem to avoid for one reason or the other. While FHA has loosened up some of their guidelines on FHA loans, the stigma remains and I've had some Realtors® tell me sellers would prefer cash offers and conventional offers first. The cash offers are a given, but conventional guidelines today have become so difficult to predict and so strict that you can't automatically consider that the better option. That doesn't mean that there isn't a better option. 203KS or 203K streamline loans have become a favorite in today's lending environment because it allows you to maintain the less stringent guidelines and bring the property up to FHA standards or better yet, up to your standards.

The 203KS is the little brother to the standard 203K loans. The repairs allowed are not major and the maximum cost for the repairs can be no more than $35,000. 203KS loans are perfect for that home that is beaten up enough to be out of grasp for a regular FHA loan. The program allows the buyer to obtain an estimate from a contractor indicating the work needed to bring the home to living condition all while financing the work and adding value to your newly acquired property. FHA guidelines apply to the program including the 3.5% down payment requirement. Except this time the 3.5% down payment is calculated by adding the sales price and repairs or alteration costs and taking the percentage from there. So it would work as follows:

Sales price - $300,000
Repairs or Alterations - $35,000
Total - $335,000
Down payment - 3.5% of $335,000 = $11,725

The other difference from a traditional FHA loan is the addition of a Licensed Contractor who provides an estimate and description of the work being done. The estimate then gets plugged in to a worksheet and that's how the numbers are determined. Your Mortgage Expert should be able to help with that. The rest of the process will work exactly like any standard FHA loan would.

This program should prove to be helpful for anyone involved in the home buying process. Lenders can provide more loans to more borrowers by offering an extra service. Realtors® should be able to move homes faster and not have to worry too much about the condition of the homes and home buyers can not only bring the house up to code, but also make financed improvements to their homes they would otherwise have to pay for out of pocket.

Here is a list of allowable repairs or alterations using the 203KS program
OWNER OCCUPIED PROPERTIES ONLY

· Repair/Replacement roofs, gutters, and downspouts

· Repair/Replacement/Upgrade of existing HV AC systems

· Repair/Replacement/Upgrade of plumbing and electrical systems

· Repair/Replacement of existing flooring

· Minor remodeling such as kitchens, which does not involve structural repairs

· Exterior and interior painting

· Weatherization: including storm windows and doors, insulation, weather stripping, etc.

· Appliances - Purchase and installation are included. Appliances may include free-standing ranges, refrigerators, washers/dryers, dishwashers, and microwaves

· Lead-based paint stabilization or abatement of lead-based paint hazards

· Repair/Replace/Add exterior decks, patios, porches

· Basement finishing and remodeling, which does not involve structural repairs

· Basement waterproofing

· Window and door replacements and exterior wall re-siding

· Septic system and/or well repair or replacement

· Improvements for accessibility for persons with disabilities

• for lead-based paint stabilization costs above and beyond that paid for by HUD when it sells real estate owned (REO)

One of the more daunting obstacles for First Time Home Buyers is coming up with or spending on the down payment. In some cases, it takes years to come up with that much money and now we're asking for them to give it up. Here are five ideas for saving money replenish your bank accounts or come up with the down payment.

The easiest, least painful way for you to save money is to set up an automatic draft in to a separate savings account. The main thing you'll notice is that you'll never miss it. This is a terrific way to save money. Fit it in to your budget and then forget about it. Even small amounts can add up. Set the draft up for $50 a week, save $2,600 a year.

•2. Save your raise

A bad habit spenders develop is that of spending their money before they get it. Solution? Do the opposite. Next time you get a raise, put it in the bank or get the difference put in to a retirement account. Chances are you'll never miss it if you never plan on spending it. More income doesn't have to mean more to spend..

•3. Keep track of your spending

If you make it a point to keep track of what and where you're spending, you know where you could cut back. It's a terrific way to learn where you're overspending. Too much shopping this month? Too many trips to Starbucks maybe? Doesn't your employer offer free coffee?

•4. Cut spending

Keeping track of spending will not do you any good if it doesn't lead to cutting spending. There's several ways to cut your spending. Switch to store brands, shop with shopping list to avoid over buying, use coupons and learn to utilize leftovers. Tally your savings and put them away.

•5. Look for ways to lower your bills.

Figure out how to free money by lowering your electric bill, phone bill, insurance or cable bill but don't put this money away unless you have no more credit card debt. Paying off credit card debt is as important as saving money in the long run. As soon as you stop throwing money away on high interest credit cards, you'll find real flexibility to save money.

The way we conduct the mortgage business has changed. The new Home Valuation Code of Conduct (HVCC) is to be enforced as of May 1st. The HVCC says that loans sold to Freddie Mach (FHLMC) or Fannie Mae (FNMA) will require that the lender order the appraisal. Neither a Realtor® nor the Loan Officer are allowed to contact the appraiser.

I wanted to post a quick note about this change because its important to how we do business. The HVCC does not allow us to have contact with the appraiser. This change will affect refinance business more than anything else. Conventional loans - especially those that don't require Mortgage Insurance when the Loan to Value is less than 80% will be affected when its too close to call. Going one step further, there's a possibility the appraisal comes back at much less than was estimated. Then you have no deal and the appraiser will expect to be paid regardless. You also lose the opportunity for the trained eye of a professional evaluator to provide input prior to ordering your appraisal. Our appraisers gives us an estimate for an appraised value. Their analysis is important as we come up with numbers that work for you and for your situation.

As a Loan Officer, I'm all for cleaning up the industry. However, my feeling is that taking away one of the resources that helps us provide better service is counterproductive. We have to remember, as it is, appraisals are thoroughly reviewed by underwriters before loans are approved. It's not as if appraisers make up values, they include evidence in their reports to back it up. I anticipate this new policy will have negative consequences for potential borrowers.

It should be noted that FHA loans do not have this regulation in place.

From time to time, we all have to ask ourselves what advantages there are to buying over renting. With home prices continuing to go down and rents rivaling those of mortgage payments (including taxes and insurance) its time to visit some of the concerns a first time home buyer would have when buying their first home.

Concern #1 - What if the price of the home goes down?

This concern is probably on the top of most people's list. Everyone wants to be an expert on everything and you'll hear it from friends, family members and random people like my CPA the other day. The truth is, even the most seasoned Real Estate Professionals cannot predict what will happen in these uneasy economic times. However, one Real Estate agent put it best the other day when she said it doesn't matter what happens in the next couple of years with home prices. Fact remains, you keep renting you'll keep throwing that money away anyway. Throw $1000 away on rent for two years and that's $24000 you'll never see again. Isn't that the same as losing that kind of equity on a house? This money also goes with no tax benefits.

Concern #2 - I can't pay for a down payment or for closing costs.

This one is more gray than black and white. Last year, the Nehemiah program which allowed the seller to fund your down payment was taken away and Real Estate Professionals were left scrambling for a way to get 100% financing. Today, the government gives an $8000 credit to first time home buyers that they DO NOT have to pay back. But that doesn't really put money in our pockets today does it? There are several ways to get a down payment. FHA loans only require 3.5% and the money can be a gift from a relative. Down payment assistance is also slowly making a comeback and most cities even offer the Neighborhood Stabilization Program now which allows money for down payment and for repairs in homes that need it. Here in Los Angeles, it's only for certain pockets and doesn't cover most of of the territories. The area is gray because while its not as bad as it seems (i.e. tax credit will refund your down payment if you already have the money) there isn't really a great solution for the down payment. Its likely you'll need to bring in something even if just upfront. Closing costs, on the other hand, are being paid by sellers on most transactions now days. At least, that's how it is here in the Los Angeles area. FHA loans allow sellers to contribute up to 6% of the sales price towards the closing costs.

Concern #3 What if I lose my job?

This economy has hit many people hard. If you've lost your job, my heart goes out to you and I wish you a speedy recovery. Those of us still getting paid need to ignore the fear and keep the economy moving. Yes its different. Today we have to live within our means and avoid big credit debt or buying over our heads. That doesn't mean you don't buy anything at all. You can't control what happens in the future but if today you can make your dream of home ownership come true, then what are you waiting for? Food for thought - if you rent and you lose your job then you're out of luck because your landlord will have you out FAST. Your mortgage lender, on the other hand, has a process before they foreclose that lasts many months.

Concern #4 The media says banks aren't lending money. They won't approve me with my fico scores in the 600s.

The myth here, that I hear over and over again, is that you need a fico score in the high 700s to buy a house and that you need at least 10% down payment. What irks me about the media is that they report for entertainment purposes rather than to inform us. Are they wrong? Not exactly. The old way of lending meant conventional loans which now days do have those requirements. However, the whole story should read that FHA loans are different and more affordable. They only require 3.5% down payment, sellers can contribute up to 6% of the sales price for closing costs and the minimum fico requirement for most banks is just 620.

Concern #5 - The homes I can afford are not even in living condition and I don't have the extra money to fix it up.

This one is my favorite because I have a solid solution for it. 203K loans! These loans allow the buyer to finance to costs to fix up the home providing the end result (appraised value after improvements) increases enough to cover our higher loan amount. You have to involve a contractor unless your line of work is in construction. I've had a few Realtors say the only reason they took our offer was because it was a 203K loan for an otherwise substandard property we wouldn't be able to finance. The loan is still 3.5% down payment except its not 3.5% of the sales price, but rather 3.5% of the sales price plus the costs of improvements. So if the house costs $90,000 and you finance $10,000 for upgrades then you add those up ($100,000) and use 3.5% of that or $3,500.

This post is not meant to trivialize your concerns on buying your first home. These and any other concerns are as legit as you believe them to be. My intentions are to keep the concerns in perspective and hopefully provide some useful information that'll assist you in achieving the dream of home ownership.

As the times change so do society's ideas of what is and isn't important. In the housing industry, fico scores were secondary to soaring house values that dominated the decisions being made on home loans. Two years ago, 580 fico scores got you 100% financing or MORE! Today, unless you get really lucky with an FHA loan and deal with the resulting Mortgage Insurance, a 580 doesn't do much for you. Something you might not have to deal with if you could just tweak your score to be enough for those prime rates you hear so much about. As a Mortgage Consultant, we get to see many credit reports and while we all have our ideas of why our score is what it is, here are some tips as to how to get raise that your score.

Review your credit report regularly As a Home Loan Consultant, we get to see a lot of credit reports, analyze them and go over them with our clients. Bad credit reports are common but there are three types of customers. The one who already knew they needed work but were hoping the stars were lined up to magically give him a good score. The one who thinks they have good credit because they've paid their previously late credit cards or collections off or they've been on time for six months but not before that. Remember it takes time to rebuild your credit after just one blemish. The last one, and the one I'm sure nobody wants to be included in, is the one who is correctly thought they should have good credit but just found out there are accounts that incorrectly appear on their credit. It can be a mistake, identity theft, or someone with a similar name. Whatever it may be, the problem could have been avoided if you had kept track of what is being reported on your credit. So review it regularly, things can be happening without you even knowing.

Dispute incorrect information So you get your credit report, you find that there are some credit cards that were opened under your name but you never opened such card. What do you do? Well, call the police first. But once you file your report please dispute all accounts that are wrong. I can't tell you how many times people say "Oh yea, they told me last time but I haven't gotten around to fixing it." Not to trivialize your time and how busy you are, but this is pretty important. The amount of money you can save on interest and benefits a good fico score can get you is valuable. Report it, document it and keep it handy because your pesky Mortgage Consultant (that's me) will ask for it.

Pay you're accounts on time, no matter what! This one is especially important to the busy person out there. Explanations are always requested from our buyers for their late payments and I tend to get reasons like "I forgot" or "I was out of town and the payment wasn't made" or "its set up to be paid automatically and I had no idea." Again, I know we get busy and I know sometimes there just isn't enough time, but "I forgot" or "didn't have time" just isn't good enough. Think of it this way, the bank is l ending you money for which it will require a monthly payment just like that credit card you "forgot" to pay last week. They don't want to lend to the person that forgets. If you're that busy, set up automatic payments. You can set it up for the minimum and apply anything extra at your leisure. Creditors give you 30 days before you get reported as late on your credit report, that should be enough for you to catch it and pay it. Just one late payment can hurt your score dramatically.

Keep your revolving balances low...but use your credit! Revolving balances are credit card or lines of credit. Paying any and all balances is always good for your credit. Credit management, however, is key when determining your fico scores. Credit management is your ability to live within your means, use credit wisely, and pay your debt on time. You should aim to keep your balances below 30% at all time. To reallly impress the bureaus, I'd aim for 10% or less. If you have credit cards and can't pay them down that low, consider installment loans. While they may have higher interest rates, those balances do not negatively affect your fico scores the way maxing out your credit cards does. Keeping the balances on your credit cards at a low percentage from your total credit is essential to getting your fico score to new heights. You should, however, use your credit. This often gets overlooked even by professionals in our industry. We assume good credit means you pay your debt and don't use credit cards. Not using credit cards isn't good credit, its no credit. Internally, that may make you feel good about yourself and that's great. However, if you don't use credit for a long enough time you won't receive a score. So to recap, maintaining an outstanding credit score has more to do with credit management. Keep your report on check, report any wrong information, pay your accounts on time and keep your balances low. Its a matter of paying attention to your finances to get the best out of the opportunities out there. As usual, contact me with any questions. Regards, Hector Amendola