Dear Santa,

2008 has been a tough year on all of us - home buyers, home sellers and all the real estate professionals involved in the sale of residential real estate: Realtors, lenders, home inspectors, appraisers, title companies, home improvement contractors and the many people - real human beings - that work at all these places.  It would be real nice if you could arrange for a 2009 that’s a little easier on everyone.

The List

• Equilibrium - this is where there are about the same number of houses for sale as there are home buyers who want to purchase a house.  This works well for everyone.  Home buyers still have a great choice of homes without having to get into bidding wars, they can still do inspections and get repairs completed and prices will be reasonable.  Home sellers won’t have to worry about waiting a year while their house sits on the market and, most importantly, the house will sell so they can move onto the next chapter in their lives.
• Low Mortgage Interest Rates - this will help people who want to buy homes and it will help people who own homes. Low mortgage interest rates will help keep monthly payments reasonable and affordable for new home buyers.  They will also help all those folks who bought a house years ago with those fancy Adjustable Rate Mortgages (ARMs). If rates stay low, their rate won’t go up (it may even go down) and they’ll be able to stay in their home and help with that equilibrium thing.
• Credit Standards That Work - No, Santa, I don’t want to go back to the day when anyone who could fog a mirror could get a mortgage.  That was way too liberal.  It would be nice, though, if requirements needed to get a mortgage were a little bit more relaxed. Right now, it’s almost impossible for self-employed people or even the affluent to get mortgages because of all the documentation requirements.  There are lots of people that may have credit scores in the high 600s that will probably pay the loan back like clockwork.  Appraisers need some leeway to consider the glut of foreclosures and short sales that are artificially depressing the market.  Santa, let’s just lighten up a little bit.
• Civility - I know that this is the tough one, Santa. It’s sort of on the order of “world peace”.  Home sellers want the absolute most they can get and home buyers want to pay the absolute least they can pay.  That’s OK.  But do we have to be so mean about it?  If home buyers get a good price do they also need to nit pick every crack and tear in the house?  Do Realtors have to scream or make threats about “walking away” in order to transfer real estate from seller to buyer? It’s alright with me that people stand firm on what’s important to them.  We should be able to negotiate in good faith and with an even temper so that everyone comes out feeling good about the process and the end result.

So, there you have it, Santa.  It’s not a long list.  You don’t even have to deliver it all on Christmas Day. Sprinkle it on throughout the year.  Keep it in mind, though, Santa. Pretty please.

Yesterday the Federal Reserve lowered the famous “Fed Funds Rate” to between 0% and .25%. This means that the money that banks borrow from the Fed or among themselves is, realistically, “free money”.

According to the mortgage professional I refer my clients to most, Alan Gross of National City Mortgage, this change had an almost immediate effect on home mortgage rates. Mortgage interest rates for conventional, 30-year fixed mortgages are now below 5%.

Can Anyone Get These Great Interest Rates?

Absolutely.  Anyone with a good credit score, money in the bank for a down payment and verifiable documentation for employment and assets (bank accounts, retirement accounts, etc.).  You see, even though rates are are hugely attractive levels - and remember these 30-year fixed mortgages - the mortgage people are still only lending money to those who qualify.

In fact, in Maryland the law requires lenders to prove - with documentation - that the borrower has the ability to repay the mortgage. So, for moderate income and first time home buyers, the FHA mortgage is still the way to go.  Luckily, the rates for FHA mortgages follow the conventional market and are sometimes even lower!

First Time Home Buyers Dream

These low rates are now making home ownership for first time home buyers much more realistic and completely doable.  The low rates translate directly to lower monthly mortgage payments.  So it makes it that much more attractive to get serious about buying a home.

lower sales prices for homes+
seller concessions for closing costs+
extremely low mortgage interest rates+
=a very affordable way to buy a house.

And don’t forget that there is a $7.500 tax credit for first time buyers that is still in effect.  So it makes buying your first home that much easier.

The best part is that there are lots and lots of home in the MD Suburbs of DC that are not short sales and can be bought within a reasonable time frame.

Are you curious about what mortgage rate you qualify for and what a monthly mortgage payment would look like for you?  Shoot me an e-mail or call at 240-417-9100.  It’s free.

Many years ago, before the huge frenzy of a Seller’s market we had in the early ’00s, parents sometimes invested in buying a home for their kids during the years they went to college. Many times they would put their children on title and the mortgage as a way of teaching the responsibilities of home ownership as well as the many benefits of home ownership.

As the years passed and the kids graduated from college to move into the world of work, the parents would sell or gift their ownership interest in the house to their children or rent it out as an investment property or outright sell it. The real benefit of owning a home during the kid’s college years was that the parents actually got a financial return and the kids had a place to live.

Why College Park, MD Is Prime Real Estate For “Kiddie” Homes

College Park, MD is home to a pretty large university - the University of MD. As I understand it there are well over 35,000 students. And that’s only the undergraduates.  A lot of those students are housed on campus.  A lot must look for homes off campus either in various condo buildings scattered around College Park or in single family homes owned by investors.  In fact, there is a great shortage of off campus housing for students.  That’s what makes College Park, MD such a great place to own real estate.

So wouldn’t it make sense to own instead of rent?  Let’s see how.  Here are two ways to do it:

1. Buy a home outright as an “investment” property.  This means that you don’t plan to live in it at all.  You plan to buy it, rent it out to people you don’t know (or your kids) and then sell it sometime in the future.  This way requires excellent credit (over 680) and at least a 20% down payment. Plus the interest rate will run ¾% to 1% over the current market rate. Ouch!
2. Buy the home with an FHA mortgage with at least one family member (presumably your kids) living in the house and named on the title and mortgage. The credit score requirement is much more flexible, the down payment requirement is currently 3½% and the interest rate is the “owner occupant” rate - currently around 5½%. Yay!  Less money down, smaller interest rate, less than perfect credit allowable.

What’s The Catch?

The catch with FHA mortgages is that at least one of the folks on the mortgage must occupy the house.  They don’t have to qualify for the mortgage in any other way - income, job, credit score.  That’s the job of the non-occupant owner - the parents or other family member. The income and debts of all the people involved are taken as a group and then used to qualify for the mortgage.

Sweet, huh?

This also works for older folks as well. Say you have an elderly parent or grandparent that you want to move close to you (but not in with you). You can use FHA mortgages to buy a small condo or rambler down the street from your place for the elderly parent so you can peek in on them from time to time. They get to keep their independence and you get to keep your sanity while enjoying a great real estate investment.

If you’re interested in more details about how this might work for your kids or any other member of your family, just shoot me an e-mail or call at 240-417-9100

I was listening to an interesting story on CNBC a little earlier to day.  It seems CNBC was confirming a story in the Wall Steet Journal that the Federal Government was going to use mortgage giants, Freddie Mac and Fannie Mae, to push down mortgage rates to around 4.5%.

This would be a huge benefit to both current homeowners and people who would like to buy a home.  People could refinance out of subprime mortgages or ARMs and keep their payments affordable.  New home buyers will now have homes that are more affordable.  Home sellers would be able to sell their homes a little bit more quickly and, maybe just maybe, it would help stabilize home prices, in general.

You Still Need Good Credit

You’ll still need to have great credit scores, money for a down payment and full documentation of income, assets and employment.  However, it is still highly likely home buyers will be able to get concessions from sellers in order to pay closing costs.

The important thing would be to talk to a highly reputable and experienced lender who can help you work through either the refinancing of your home or the purchase of your new home.

This is still “just talk”.  Nothing has been set in concrete yet but if the Wall Street Journal is reporting it and CNBC is confimring, the chance are good that it’s coming down the pike.

Something that might interest you?  Just click on the Comment link at the top and let me know…or e-mail me.

Today, I have been receiving multiple e-mails from lenders keeping me up-to-date on the latest moves in the mortgage market.  This comes from one of my most trusted associates - Alan Gross of National City Mortgage.

The message is simple.  The Federal Reserve has moved to create a more hospitable mortgage environment so that potential home buyers can buy homes.

Below is the note I received from Alan.

The Nitty Gritty

The real estate market and mortgage interest rates received a huge boost this morning. The Federal Reserve (Fed) announced this morning that it would be purchasing Mortgage-Backed Securities (MBS) backed by Fannie Mae, Freddie Mac, the Federal Home Loan Banks,  and Ginnie Mae. This new program will be known as the Term Asset-Backed Securities Loan Facility (TALF). The total funds allocated to purchase MBS’s is $600 billion. Some have suggested that this is a brilliant move by the Fed to help increase the availability of credit while lowering fixed mortgage rates. The Fed has been trying since late last winter to lower mortgage rates to get the housing market moving forward.

The effect on mortgage interest rates was immediate. Mortgage backed securities are trading over 100 basis points higher based on the news. If this trend continues we may see interest rates move down to the low levels we saw during late January and early February earlier this year.

In addition to the $600 billion for MBS, the Fed announced it is setting up a program to $200 billion program to support consumer and small business loans. This plan will support and create liquidity for auto, student and small business loans.

Mortgage-Backed Securities have been under pressure since September when investors who normally purchase them have shied away due to the uncertain futures of mortgage finance giants Fannie Mae and Freddie Mac. The effort by the Fed complements the Treasury’s effort to prop up the mortgage market. The Treasury took over Fannie Mae and Freddie Mac in September and has been buying MBS’s since the takeover.

As I have said in the past, some of these interest rate movements are short-term in nature. Although the actions are designed to push rates down over a period of ti me, no one knows how the market will react. To keep up with the trends in interest rates you can visit my Daily Market Report .

One of the biggest challenges in today’s real estate market in the amount of the monthly payment.  This payment is determined by a few things:

1. Sales Price of the house
2. Taxes and Insurance
3. Interest Rate

The Taxes and Insurance are basically the non-negotiable part of the mortgage payment.  Taxes are set by the County Government and the insurance premium depends on the insurance company that will issue the policy.  However, the sales price is completely negotiable between the Seller and the Buyer (assuming a “normal” sale - not a short sale or foreclosure) and the interest rate can be lowered through these negotiations!

What The Heck Is A “Buy Down”?

Many people will shop around from lender to lender looking for the “best rate”, whatever that is. Sometimes people will jump from one lender to another for one eighth of one percent (.125%) - pretty doggone small and almost insignificant as it relates to the monthly payment.

Another option would be to “buy down” the interest rate.  Let’s say the prevailing market rate is 6%.  Wouldn’t it be nice to lower your payment by lowering your rate to, say, 4% for one year, 5% for year 2 and then 6% for the rest of the 27 years of the mortgage.

This is essentially a fixed rate mortgage with a little cushion in the first two years. The rate does not adjust yearly after the Year Three adjustment, you know exactly what the adjustment will be in Year Two and Year Three.  You can plan for the modest increase in your mortgage payment.

How The Seller Pays Down The Rate

The best part of all of this is that the Seller will the pay cost of paying down your rate for Year One and Year Two.  All you need to do is get the Seller to agree as part of the initial contract negotiations to contribute whatever the “buy down” costs may be.  Typically this may be as low as 2% to 3% of the sales price of the house.  Since FHA loans allow as much as 6% Seller Contribution this will also leave room to ask the Seller to pay some of the Buyer’s other closing costs such as appraisal fees or title search fees.

The real catch in all of this is to:

1. Come to an amiable agreement with the Seller about the Seller Contribution and,
2. Working with a knowledgeable lender who will structure your mortgage with the most advantageous rate and “buy down” terms.

The Difference Could Be Hundreds Of Dollars A Month

Many times, this approach can mean the difference between buying a single family home or a town house, or between buying a home and not being able to buy a home.  It could literally save a home buyer hundreds of dollars per month off their mortgage payment.

Unlike, the traditional ARM (Adjustable Rate Mortgage), these “buy downs” have fixed adjustments for Year One and Year Two and a fixed rate for Year Three through Year Thirty. Plus the rate is set at the beginning of the mortgage. You don’t have to worry about the rate adjusting if rates go through the roof. What you get up front is set in stone.

The key is a good Realtor who understands to process and can negotiate with the Seller’s agent to arrange great terms (I’ll raise my hand, here!) and a good lender who can structure the loan properly.

Back in the Spring when the economy was bad but not quite in meltdown stage yet the Congress passed a housing bill that raised FHA loan limits in the MD Suburbs of DC area to $729,750 from their previous limit of $369,900.  That was a good thing.  It was also temporary.  The new limit was set to expire on December 31, 2008.

The Good News

The good news about FHA backed mortgages is that the limits are being reduced to $625,500 in the MD Suburbs of DC. Limits vary from location to location but in this area we’re good for the top limit. The new top loan amount is good for the foreseeable future. This is a huge plus for our area because homes prices are still pretty high and since the mortgages are backed by the US Government there are lots of mortgage compainies that are willing to lend money to people who qualify for them.

The other great part about FHA mortgages is that the qualification standards are significantly more relaxed than conventional mortgages.  That’s a good thing for first time home buyers, buyers with less than perfect credit, buyers who may need a co-signer that will not be living in the home (such as a parent or other family member that wants to help but won’t be living in the house), gifts from family members are still allowable for the down payment.  Here is a full run down of the FHA guidelines for lending.

Speaking of Down Payments

Part of the bad news is that the down payment required for FHA 203(b) loans - the regular type - is increasing from 3% to 3.5%. Thius means that home buyers will need to come up with more cash to make a home purchase or get someone to provide them with a gift to help out. However, the FHA 203(k) which is the loan used to help renovate homes that need repairs - think “short sales” and foreclosures - will still have the old down payment requirement.  So it actually makes the FHA 203(k) an even more attractive option when buying a home.

The Bottom Line

So the good news is that FHA loan limits remain high enough to be able to use FHA mortgages for most homes int the MD Suburbs of DC. More good news is that the FHA 203(k) and FHA 203(k) Streamlined mortgage products will stay at the old down payment requirement. The not-so-good news is that the down payment requirement for the regular “plain vanilla” FHA mortgage with increse from 3% to 3.5%

FHA is still one of the best ways to home ownership around, though.

One of the loan officers I routinely refer to my clients, Alan Gross of National City Mortgage, sent me the following update on the mortgage environment.

Earlier this year the loan limits for conforming  and FHA loans were raised up to a maximum $729,750 in high cost areas by The Economic Stimulus Act of 2008. (Ken’s note: The MD Suburbs of DC is such a high cost area.) These higher loan limits disappear on December 31, 2008.

What may not be understood is that the Jumbo Conforming Loans are almost gone now. Because of delivery requirements for the Jumbo Conforming Loans, most lenders are requiring that the loans be funded before December 15, 2008. Some are cutting off locks as early as mid November. Buyers who are considering purchasing a home with the new temporary higher limits and plan to close at the end of December may find themselves out in the cold.

Although new maximum loan limits up to $625,500 have been announced the newly calculated area median sales price index hasn’t been announced yet. The area median sales prices index is recalculated based on the housing price data from October 2007 - October 2008. This data is expected to be released in November 2008. Until the data is released the Jumbo Conforming Loan program will be in a short hibernation mode.

FHA loans will be able to close using the current maximum loan loan amount of $729,750 through December 31, 2008. The new FHA loan limit will also be $625,500 starting January 1, 2009. The maximum loan limits for various areas will also be set when the newly calculated median sales price information is released. The maximum loan amount will be 115% of the median sales price.

Stay tuned for further updates as they are released.

By now everyone has heard that this is probably one of the all time best times to purchase real estate.  Prices have come down significantly from their highs, Sellers are more than willing to negotiate on price and closing costs assistance for the Buyer.

If a home buyer finds a nice home and it’s not a “short sale” or outright foreclosure the chances are excellent that they’ll be able to get a great bargain and move into their home right away.

There’s an extra incentive for first time home buyers.  As part of the Housing and Economic Recovery Act of 2008 passed by Congress in the spring and signed into law, there is a $7,500 tax credit to all first time home buyers.  It doesn’t matter what type of house you buy.  It can be the regular, “plain vanilla” type purchase where the Seller can work with you on price and other concessions, it can be a house that is in a “short sale” or foreclosure situation.  In the case of this $7,500 tax credit, a home is a home is a home - condo, town house or single family home.

What’s The Catch?

Here’s the big catch: the tax credit is not going to last forever.  It will end on July 1, 2009.  That still gives first time home buyers a little time to find a home but….not forever.

Let’s see:  Low prices, low interest rates, Seller concessions…and a $7,500 tax credit.  Hmmmmm.

One of the loan officers I work with has put together a nice flier that explains all the ins and outs of the $7,500 tax credit. and you can download the flier if you - CLICK HERE

Thanks to a great loan officer - Rob Mercer of First Home Mortgage - for putting this together for me.

We all know the MD Suburbs of DC is chock full of homes that are either in a “short sale” or foreclosure situation. A lot of these homes are priced to sell.  Of course, they are also discounted due to the cost of repairs that the house will need.  You see, the homes that are such a steal because they are either in “short sale” or foreclosure status are being sold in completely “as is” condition.  What you see is what you get!

For a lot a of homes the repairs may be minor, for others they could be substantial.  Either way, if the Buyer doesn’t have the ready cash to make repairs once they buy the house it may be a deal breaker for them.

A Solution

Luckily, there is a great solution for buyers to be able to buy a home, make the repairs they want to make and keep their cash in their own pocket.  It’s called the FHA 203(k) mortgage or, in a lot of cases, the FHA 203(k), Streamlined.

Both these programs will allow buyers to purchase the home and roll the cost of repairs into the mortgage itself.

For example: You’d like to buy a home that’s listed for $300,000 but after visiting the home you find out it needs quite a bit of work.  Maybe it’s simple like painting and carpet.  Maybe it’s more involved with plumbing work like new bathrooms or a kitchen, electrical work like lighting or re-wiring for a laundry area or drywall work to repair holes in the walls or roofing work…whatever.

Let’s say there is about $15,000 worth of repair work that needs to be done so the house looks really nice and is totally livable.  All you do is roll that $15,000 into the FHA 203(k) mortgage and you will essentially finance the costs of turning an ugly fixer-upper into a total beautiful place to call your own.

What’s The Catch?

The beauty of both these programs is that there really is no “catch”.  Yes, you still need to qualify for the mortgage through normal means - a verifiable income and such.  However, FHA backed mortgages are some of the easiest mortgages to obtain.

Want to know more?  Check out the “Common Questions about an FHA-Insured Loan” page. Or if you really want to make sure you qualify for this type of mortgage you can contact Alan Gross of National City Mortgage.  He’s an expert in these types of mortgages and can walk you through whatever needs to be done.