New Condo Insurance rules put the squeeze on home buyers

Buying a Condo or Town Home? Better understand the insurance rules.

Minneapolis, MN: Currently on Condominiums and attached Town home units (PUD), Fannie Mae requires insurance coverage of the lesser of 20% of the unit’s appraised value or replacement cost.

HO-6 condo townhome insurance in MN
Insurance Company for HO6 policy in MN - Click to Apply

For applications dated on or after January 1, 2012, 100% replacement insurance coverage of the exterior and interior of condominiums, or attached PUD (Town home) units will be required.

If the “master” or “blanket” policy for the condominiums or attached town home development does not provide full coverage of the interior or is a “bare walls” policy, then an individual HO-6 “walls in” insurance policy must be obtained to reach the full 100%  replacement requirement.

The owners HO-6 policy must be sufficient to repair the interior of the unit, including any additions, improvements and betterments to its original condition in the event of a loss. The HO-6 policy is required to cover 100% of the insurable replacement cost of the unit’s interior improvements and betterments, including kitchen cabinets, lighting, flooring and plumbing fixtures. This updated insurance requirement will apply to all products and program types including Conventional Conforming, Non-Conforming, FHA and USDA Rural Development loans.

Recent changes in “Fidelity Bond Coverage” has created huge problems on Condo and Town home financing, and this new insurance requirement is going to add another wall to financing these type of homes.

The only saving grace is that for most people, a walls in HO-6 Condo or Townhome Insurance policy should only run +/- about $160 per year.

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What does YOUR credit score say about you?

What does your credit score say about you?

Everyday I am looking at credit reports, and making credit decisions. It amazes me sometimes the people who call and say they have good credit, when they don’t. It also amazes me the people who have good credit, and fear they can’t get a loan.

So What’s Your FICO Credit Score?
Every lending facility uses basic guidelines to determine your credit worthiness, including your FICO credit score. Upon reviewing your mortgage application, you’re given a credit grade and credit scoreand a determination regarding your home mortgage loan approval or denial.

There are no hard-and-fast rules for determining your specific credit score grade.  Each lender’s criteria may vary slightly, but generally speaking, if you have a mix of credit type (mortgage, revolving, car loans), you have had it for awhile, and you make your payments on time. You have nothing to worry about.

800 + Credit Score: AAA+ A credit score of 800 plus is basically flawless credit. This is usually obtained only with a long history of unblemished credit. You will get the best of the best anything credit related, from mortgage loans to car insurance. Scores in this bracket represent about 13% of the population.

740-799 Credit Score:  AA+ A credit score of 740-799 is considered great credit, and will typically result in the best interest rates and approval rates for anything credit related. You have nothing to worry about if you scores fall in this category. In fact, roughly 27% of the population has a credit score of 750-799 alone.

700-739 Credit Score: A+ A score in this bracket is considered good credit. Although it’s not perfect, you should still be able to qualify for most home mortgage loans and auto or rental leases. You may be offered a slightly higher interest rate than offered to borrowers with excellent credit for mortgage loans, credit cards, car insurance, and homeowners insurance.

680-699 Credit Score: B+ Credit scores from 680 – 699 are considered average. You should never have any problems getting basic financing, but you are now in the area where you may pay a slightly higher rate, be required to have a bigger down payment, or be offered less favorable terms. There will be situations where a credit score in this range may prevent you from getting certain types of financing, such as an zero down mortgage loan, the lowest auto insurance premium, or a zero down car loan.

620-679 Credit Score: C Credit scores from 620-679 are still considered “good” or “ok” by many creditors, though you may see further restrictions and fewer approvals when attempting to get a car loans, credit cards, or a mortgage. For example, you can still get an FHA mortgage with this score, but a lot of conventional loan lenders would deny you with a score below 660. Large numbers of people have score in this range.  It would be very wise to evaluate why your score is in this range and try to improve it. In this range, you are NOT getting the best deals in the market.

580-619 Credit Score: D Credit scores in this range are bad, and clearly below average. If you are on the lower end of this range and someone asks, you can answer “I have bad credit“. You will have a difficult time securing a loan, or applying for a credit card. If you are able to secure financing, you’ll find higher interest rates for your low credit scores. If your credit score falls in this range, you definitely need to take a hard look at your credit report and take measures to raise your credit score. Many consumers with credit scores in this bracket are considered “subprime” and may have to work with bad credit banks and lenders to secure financing. You’re basically throwing money away at this point because of your poor credit.

500-579 Credit Score: F

No discussions, no glossing over it. Credit scores in this range are just flat out bad. If you’ve got a credit score in this range, there’s a good chance you have a major derogatory items on your credit report  such as as major late payments, court judgements, collections, foreclosure, or a bankruptcy. There is no question that your credit score is in need of serious credit repair. You will almost always be denied for credit with this score range, or pay such a premium for the credit, it usually is not worth it. You’re clearly paying higher interest rates and making credit mistakes that will impact your life for years to come.

Below 500 Credit Score

Credit scores below 500 are very bad. You almost have to get up everyday and ask yourself “how can I further wreck my credit today” to be in this category. You will usually have current, or very recent major issues, such as a bankruptcy or foreclosure. Improving credit from this level will usually take years to repair (but it can be done). Credit will universally be denied, and you will be paying a major premium on things like car insurance.


Boost your 2011 tax deduction, Pay your January Mortgage in December

Boost your mortgage interest deduction by paying your January mortgage payment in December!

Minneapolis, MN: Every penny counts when trying to save on your tax bill. One simple way to boost to your 2011 federal tax refund is to make your January 2012 mortgage payment while it’s still December.

It’s a simple tax strategy that works because of how the tax code is written, and how  mortgage interest is paid in “arrears”.

Different from rent which is paid for the month ahead (i.e. “you’re paying January’s rent”), mortgage payments are made only after mortgage interest has accrued (i.e. “you’re paying for money you’ve already borrowed from the bank”).

This is called “paying interest in arrears” and U.S. tax code states that the mortgage interest is tax-deductible in its year paid, not when due. Therefore by making the January 2012 mortgage payment in December 2011, homeowners who itemize their on their tax returns can apply their January mortgage payment’s interest portion to their 2011 tax returns.

If you choose to pre-pay your mortgage and typically send your payment via snail mail, give your check ample time to be delivered to your lender, and processed. Mail your check no later than Saturday, December 24. Those who pay online (like I do) , just give the payment enough processing time to post. Those who have automatic bill pay need to adjust your online bill pay program early enough to have your mortgage payment post no later than Thursday, December 29th to allow for processing time.

I’m a mortgage guy, not a tax guy, so be sure to consult your tax professional for advice in your unique situation.


FHA Extends Waiver of Anti-Flipping Regulations – Why it doesn’t matter in the real world

FHA Extends Waiver of Anti-Flipping Guidelines Through 2012.

Minneapolis, MN: In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, the Federal Housing Administration (FHA) will extend FHA’s temporary waiver of the anti-flipping regulations.

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days.  In 2010, FHA temporarily waived this regulation through January 31, 2011, and later extended that waiver through the remainder of 2011.  The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The extension is effective through December 31, 2012, unless otherwise extended or withdrawn by FHA.  All other terms of the existing Waiver will remain the same.  The waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers.

Sounds great, BUT too bad it doesn’t really matter in the real world because of the difficulty in meeting the “strict guidelines” and lender overlays, MOST FHA lenders DO NOT offer this exception.

Remember, FHA does not lend money, lenders do. FHA only insures loans lender make. Regardless of what FHA says they will “allow”, it is still up to the individual FHA lenders to decide their ultimate underwriting guidelines. Most FHA lenders find this exception too difficult to meet the strict guidelines, and too risky, so they simply WILL NOT ALLOW any FHA transaction less than 90-days.

While we are talking FHA here, lender overlays also are common on Fannie Mae and Freddie Mac programs.

The Waiver continues to be limited to sales meeting the following conditions:

  • All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
  • In all cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value

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Stop Renting – First Time Home buyer myths

No more excuses. Go buy a home!

The housing market has changed dramatically, and everyone should be taking advantage of some of the most affordable home prices, and lowest mortgage rates in history. You may be hearing a lot in the news today that in some markets it is cheaper to own than it is do rent. It’s true!

Stop listening to the doom and gloom drum beat the media plays. Bad news sell newspapers, so that is the spin they like to portray.

Common myths and misconceptions may be holding you back but shouldn’t.

  • My credit is not the best at this present moment: OK then stop delaying and start on the path to improve your credit scores. The vast majority of people can turn bad credit to good credit in less than a year – IF YOU WORK ON IT.
  • I do not have money for a down payment. Did you know you can buy a home worth $100,000 with just $3500 down payment?  There are many acceptable sources of down payment. Savings, 401k retirement plan, sale something, tax refund, or even a gift from a relative.
  • I do not feel comfortable with the economy:  WHO DOES?  But you have to live somewhere, so make that somewhere a place of your own?
  • I don’t think I will qualify for a mortgage: It takes just a few minutes for a licensed mortgage Loan Officer to review your basic information. There are no obligations, and you are committing yourself to nothing by talking to a Minneapolis, St Paul, or Duluth MN area mortgage lender. It really isn’t  as scary as some people think being a first time home buyer.


FED leaves Funds Rate Unchanged

THE FED LEAVES RATES UNCHANGED

Minneapolis, MN: Today the FED (Federal Open Market Committee) voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

Mortgage bonds are mostly unchanged since the Fed’s announcement, giving mortgage rates in Minnesota and Wisconsinlittle reason to move significantly in any direction.

Check live Minnesota Mortgage Insterest RatesWHAT IS THE FED FUND RATE? It is the interest rate at which a depository institution (Bank) lends immediately available funds (balances at the Federal Reserve) to another depository institution (Bank) overnight.  It has NO DIRECT BEARING on what you the consumer will get as a mortgage interest rate.

WHAT ARE MORTGAGE INTEREST RATES BASED ON?  The primary answer is mortgage-backed bonds, better known as Mortgage Backed Securities (MBS). Bonds issued by Fannie Mae and Freddie Mac (MBS) and the trading performance of those bonds will determine the direction of mortgage rates. Finding the catalyst that causes mortgage bonds to move will give you the keys to finding out what makes mortgage rates rise or fall.

Mortgage rates remain bouncing near all-time lows. If you’re thinking of buying or refinancing a home, it’s a good time to lock a great mortgage rate.

In its press release, the Federal Reserve said that the the U.S. economy is improving, noting that since its November 2011 meeting, the economy has been “expanding moderately”. The Fed also added that domestic growth is occurring despite some “apparent slowing in global growth” — a nod to ongoing uncertainty in  Europe.

The Federal Reserve expects a moderate pace of growth over the next few quarters, and believes that the jobs market will continue to improve, but slowly.

Other potential soft spots within the economy include :

  1. A slowdown in business investment
  2. A “depressed” housing market
  3. Strains in global financial markets

The Federal Reserve added no new policies at its December meeting, and made no changes to existing ones. It re-iterated its plan to leave the Fed Funds Rate within its current range of 0.000-0.250 percent “at least until mid-2013″ and re-affirmed “Operation Twist” — the stimulus program through which the Fed sells Treasury securities with a maturity of 3 years or less, and uses the proceeds to buy mortgage bonds with maturity between 6 and 30 years.


Have mortgage interest rates finally bottomed out?

Have mortgage interest rates bottomed out?

The most recent Freddie Mac’s weekly Primary Mortgage Market Survey (www.FreddieMac.com) has the most recent average 30-year fixed rate mortgage at 4.00%  – about the same as it has been for the past few months.

Mortgage Rates in MN and WI
Check Mortgage Rates in MN and WI

Over recent months, the average 30-year fixed mortgage rates have ranged between 3.97% and 4.02%  with an accompanying 0.70% discount points, and standard closing costs. Closing costs can vary by state and 1 discount point is equal to 1 percent of your loan size. An example of state differences: Minnesota has a “Mortgage registration tax” of either .0023% or .0024% of the loan amount ($230 – $240 on a $100,000 loan) depending on which county the property is located, while Wisconsin doesn’t have this tax at all.

In other words, to get the weekly, published Freddie Mac rate, homeowners should expect to pay all normal and regular closing costs, plus (based on last week) another 0.70% in discount points. Lower interest rates, low fee and no cost loans are available too — typically in exchange for higher costs, or a higher rate.

A breakdown of the Freddie Mac survey shows that interest rates and discount points vary by region. Typically, states in the West Region offer the lowest rates but with the highest costs. East Region states work in reverse; rates are often highest but the accompanying points are fewest.

The most recent mortgage rate breakdown by region shows :

  • Southeast Region : 4.06% with 0.9% discount points
  • North Central Region : 3.97% with 0.7% discount points
  • Southwest Region : 4.04% with 0.7& discount points
  • Northeast Region : 4.00% with 0.7% discount points
  • West Region : 3.96% with 0.8% discount points

These current rates are well below their 2011 highs. Since mid-April, mortgage rates have been in descent, dropping for 5 consecutive months before reaching to their current, “rock-bottom” levels mid October 2011

Since then however, mortgage rates have held steady with little variance. Things in Europe have settle down, and the the U.S. economy is showing signs of a rebirth, and the housing market is showing two steps forward, one step back signs of recovering.

So, if you’ve been holding out for lower mortgage interest rates, it would appear now is the time to take advantage near historic low interest rate opportunities because, looking ahead to 2012, mortgage rates look poised to rise.


Adjustable Mortgage Rates Hit New Low

Adjustable Mortgages Hit New Low

Historically in the United States, adjustable rate mortgages have always accounted for a small portion of overall mortgage loan choices. During the boom a few years ago, they jumped up dramatically, but still held just a small portion of the market.

Today, they hold an even smaller portion of the market share due to many factors, but most of them resulting from a misunderstanding, or lack of education on the borrowers part before taking one. For most people, they are considered too risky. Funny thing is, the rest of the world is just opposite. Almost everywhere else, the adjustable loan is the only product available, and if they offer a fixed rate loan, it is rarely over 20-years. The 30-year fixed exists primarily just in the United States.

It might be time to rethink the adjustable loan, as the Monthly Treasury Average has just set another record low. A review of Federal Reserve data indicates that the MTA was just 0.19583 percent in November. It was the lowest level ever for the index based on data back to 1953.

Today, we are seeing a spread of about 1.25% between a 30-year fixed loan and the most popular adjustable, the 5/1 ARM. On a $200,000 loan, that is about $130 per month difference.

The MTA index is determined based on the daily average for the yield on the one-year Treasury note for each of the past 12 months. The one-year yield averaged 0.11 percent during November.

Why is this important? Because adjustable loans all have a margin and an index. The margin is permanently set based on the loan, while the index can change. The lower the index, the lower your adjustable loan.

If you currently have an adjustable mortgage loan, you should be very happy right now.