Increasing Buying Power-Understanding Credit

Cherry Creek Mortgage Company will be holding a free class on understanding the in’s and
out’s of credit scoring on May 20, 2009 at 4:00pm . This class will be held at
Cherry Creek Mortgage 1630 South Stapley Drive Ste. 100, Mesa, AZ 85204.

This class will be taught by Charlie Brandes with Advantage Credit. Charlie is an expert
speaker/instructor on this topic and travels the entire state of Arizona talking to
realtors, consumers and borrowers about the power of credit.

Charlie will be covering the following topics:

What is the best mix of credit to obtain the highest scores

The do’s and don’ts with credit for buying property

How degrogatory information will impact your credit and buying potential

How to increase your potential buying power with better credit scores

Plus Charlie will go over proven tips to help prevent fraud and identity theft.

If you would like to attend, please RSVP by emailing me.

Cherry Creek Mortgage Company announced on February 20, 2009 that they are now requiring minimum credit scores of 620 or higher for most FHA and VA loans. This comes as no surprise since most industry standards with investors have already moved in this direction. These new credit score requirements will not apply to borrowers who are applying for an FHA Streamline Refinance or VA Interest Rate Reduction.

Now please be aware that this is NOT an FHA or VA rule. FHA and VA loans in general are not credit score driven programs. However, due to higher default rates on these type of loans, the investor market who buys these loans put in certain stop gaps to get a better handle on marginal credit score borrowers and high default rates.

Mortgage Loan Programs for Credit Challenged Buyers

Every time I turn on the television or listen to the radio I hear another media talking head share with the public that banks are not making mortgage loans for buyers with credit scores less than 680, 720 or 740. Well I want to first set the record straight that this is not entirely true.

Now Let me make myself clear that “YES WE CAN” get you a mortgage if your credit score is lower than 680. There are conditions, but it is possible and I do it everyday for a lot of my clients.

Now that I set the record straight, let me explain this a little further.

First of all, it depends on where you go to get the home mortgage. Some of the bigger commercial banks and other financial institutions only sell a certain selection of mortgage products. Most of these mortgage products are all credit driven loan programs and are called conventional loans. So if you go to one of these banks or financial institutions for your home loan they might give you the same answer that you have been hearing on the radio or television. For example, I have a client that just came to me for help with a home loan. She originally went to her credit union to get the loan before speaking with me. This credit union told her that she had to put at least 5% down and she needed a credit score of at least 680 to secure the loan. Since she did not meet this criteria the credit union informed her that they could not provide the loan. What she was not told was that there are many alternative mortgage loan programs for buyers who do not have to put 5% down or require a 680 credit score.

So what are the mortgage loan options if your credit score is below 680?

The best mortgage programs for buyers who are credit challenged are ones in which the loan program is not entirely based on credit. Most government backed loan programs fit under these criteria such as FHA, VA and USDA loans. These programs are what I call “Guideline” loan programs. Under these types of loans you can expect less amounts required for down payment and credit scores as low as 580. Now the catch is you must meet the loan programs “Guideline”. Most of these programs require at least 2 years solid employment in the same line of work with the ability to prove that you can afford the payment. Having money saved up in your bank or retirement accounts always strengthen the file. Credit is used and most of these programs look at specific patterns on your credit. For example if 6 years ago you had a bankruptcy and have started to re-establish your credit, and your new history has been clean for the last 1-2 years, you will probably get approved on your credit profile. These types of loans are all reviewed by a human underwriter and sometimes things from your past can be explained with letters of explanation. Basically your file is reviewed on a case by case basis based on the program guidelines that are set up for each one of these government loans.

If you have further questions and would like to discuss your situation further, please feel free to just drop me an email or just call me.

The Housing and Urban Development better known as HUD has finally halted abusive practices by home-builders in which they would revoke huge buyer incentives for not using their preferred/affiliated mortgage company. When a colleague of mine Tom Burris shared this with me, I was jumping up and down in excitement. Over the last 2 years I have written 4 posts about this abusive behavior.

Are Builders Violating RESPA with Using In-House Lending?
Home-builders and Abusive Practices
Should I use the Home Builders Lender?
I decided to try and take some action against Home-builders and Abusive Practices

Effective Jan. 16, 2009 a new home builder can no longer use “disincentives” to steer their customers to their preferred mortgage company. In practice, builders have for years offered huge monetary incentives to steer customers to their preferred/affiliated lenders. Likewise, if the customer chose not to use the preferred/affiliated lender a huge “disincentive” was created in that the monetary incentives were taken away. HUD makes it clear that economic disincentives that are used to improperly influence a consumer’s choices are as problematic under RESPA as are incentives that are not true discounts. Under the new rules a consumer would be more likely to shop for a home and the loan and settlement service that is best for them, free from the influence of deceptive referral arrangements. RESPA Final Rule:

Now for the 1st time both the consumer and the mortgage provider will have a fair playing field with the home builder. This will allow the consumer to have more options when shopping for a home loan. It also puts the control back into the consumers hand. During the last 3 years, I saw a lot of consumers who ended up with a bad mortgage because that is what the builders preferred lender offered them. When the consumer questioned the loan, the builder threatened to pull their incentives for walking away from that loan. Some of these same folks lost their homes because that preferred builder lender put them into a wrong loan product such as an adjustable rate mortgage.

Today everyone is always wondering what is going on in both the mortgage and financial markets. I am great at breaking down the mortgage markets, but I decided to team up with Fuller Asset Managment to provide my readers information on the Financial Markets. This will be a new segment that will be posted every month. Follow the link for more information about Fuller Asset Managment.

As Lawrence Fuller states: “We are in the midst of a synchronized global recession due primarily to an unprecedented contraction in credit availability“. This is defentiley the case we are facing today. Basically in todays business market cash is king. Lawrence states in his article that we need smarter government not bigger government. Lawrence finishes by stating that we will start to see an improvement in the credit institutions over the next couple of months.

The Perfect Home Buyer Storm

photo credit: Christoph Schweiger

Normally I am not one to predict the market when it comes to mortgage rates, home values, good deals, tax incentives or tax rebates, but the writing on the wall is extremely clear to me that we have entered into what I want to phrase “The Perfect Home Buyer Storm”. I have not known a better time for first time home buyers or step-up home buyers to take advantage of all the benefits that are out there right now.

Here is my list of things that have transpired to make this “The Perfect Home Buyer Storm”:

1. Home Values have dropped to the lowest levels we have seen in the last 2-3 years. I saw a HUD Home in my local market priced at around $29,000.00 dollars. Now this does not mean that some areas might dip lower, but it’s like buying a good value stock at the bottom of the market.

2. The Tax Rebates that the government is offering for first time home buyers is incredible. (Home Buyer Tax Credits Worth $7,500.00). With $7,500.00 worth of tax credits, this should give you another reason to move on these great offers.

3. Good Deals on homes are plentiful. 2-3 years ago everyone had multiple bids out there to get into a home. Today all the choices, colors, locations, prices,
amenities and sizes are available. With so many pre-foreclosures, bank foreclosures and HUD homes of your choice, there is a home to fit any household budget.

4. Uncle Sam is still offering tax deductions on mortgage interest. I know this is an old reason to buy a home, but it still makes my list of ideal reasons.

5. Interest Rates are at it’s lowest point in the last 5 years. With interest rates so low, the cost to borrower is less, which equates to very affordable mortgage payments. There are a lot of people who are currently paying more for rent than the cost of a mortgage each month.

Right Now is the time to take action and get pre-approved. This is like seeing Halley’s Comet . This is a once in a lifetime home buyer storm that might never come back this great.

Home Buyer Tax Credits Worth $7,500.00

If you are in the market to purchase a home for the first time in your life and want to take advantage of the down slide in the housing market, the government has just given you 7,500 more reasons to sweeten the deal.

On July 30, 2008 the President of the United States Signed into effect the Housing and Economic Recovery Act of 2008 or better known as HR-3221. This law basically created a special tax credit for first time home buyers to purchase homes and take advantage of $7,500.00 worth of tax incentives if a home is purchased between April 9, 2008 and July 1, 2009.

Let me share some important details about this program further. First of all to be eligible for the tax credit you must meet the following guidelines:

The tax credit is only available for first time homebuyers as defined by the government as being a buyer who has not owned a home in the last 3 years.

You must buy and close on the new home before April 9, 2009. If you buy after this date, the tax credit is no longer offered. So make sure you buy during this time frame.

The credit is available to single person taxpayer with an adjusted gross income of $75,000.00 or less or married jointly taxpayers with an adjusted gross income of $150,000 or less to get the full credit. Some Credits are available for those making more than the limits listed here.

(Please seek information from a professional tax preparer or certified tax preparer. I am not a tax professional and cannot give you tax advice.)

Now please be aware that anytime the government offers something for free, there is always some type of catch. The catch in this case is that the tax credit is not a free gift. This tax credit must be paid back to the government over 15 years at $500.00 a year starting with the following tax return after you received the tax credit. For example if you take the tax credit this year in 2008, then you start repaying the $500.00 a year on your 2010 return.

Late positioning for the month spurred buying in both stocks and Treasuries today but light volumes in abbreviated sessions may have exaggerated price moves. Some safety flows favored bonds as news of terrorist activity in India continues to come in. Events that may have an impact on the markets often motivate investors to seek areas of less risk before a weekend when they cannot react to the news. 

10 Year Note Yield

But the safety shift did not extinguish this week’s positive sentiment in the stock market as traders have been picking up what they perceive as bargains.In late trading, the 10-Year Treasury Note was up by 16/32, lowering its yield by 6 basis points to 2.92%; the Dow was up by 102.43 points to 8,829.04; and the Nasdaq was up by 3.47 points to 1,535.57.

Despite bleak economic news released this week and expectations of more to come, stocks have had a good week. Announcements this week of new government efforts to facilitate credit flows and the selection of economic officials for the next administration have kindled some optimism and traders began to perceive the stock market as being oversold. But analysts note that the bounce is a test of the recent downtrend and it could trigger new waves of selling as more bearish news is released.
Oil futures rose today with a barrel of light, sweet crude for January delivery up by $1.08 on the New York Mercantile Exchange to settle at $55.52. For the week, the price has risen by $5.59 and today’s close was the highest for the front-month contract in two weeks. However, the price was down for the month by $12.29.

By the end today’s stock trading, the Dow had gained 1.17%; the S&P 500, 0.96%; and the Nasdaq, 0.32%. All three made good gains for the week with the Dow rising by 9.73%; the S&P 500, 12.03%; and the Nasdaq, 10.92%. But they all declined for the month: the Dow lost 5.32%, the S&P 500 lost 7.48%, and the Nasdaq lost 10.70%.

The yield of the benchmark 10-Year Note fell by 28 basis points this week (yield moves inversely to price). For the month, the yield has fallen by 104 basis points and currently stands at an historically low level.

Next week brings the early-month heavyweight economic indicators: the national index on the manufacturing sector and the employment report. The manufacturing data from the Institute for Supply Management (ISM) comes out on Monday. In its report for October, the ISM said its purchasing managers index came in at 38.9. Any reading below 50.0 indicates a general contraction in activity relative to the preceding month and October’s reading was the lowest since September of 1982. Analysts had predicted an index of about 41.5 following September’s 43.5. In the last twelve month’s, the index has registered 50.0 or above only four times and the strongest of those readings was 50.7.

The news release included the following explanatory comment by Norbert J. Ore, chair of the ISM, “The PMI indicates a significantly faster rate of decline in manufacturing when comparing October to September. It appears that manufacturing is experiencing significant demand destruction as a result of recent events, with members indicating challenges associated with the financial crisis, interruptions from the Gulf hurricane, and the lagging impact from higher oil prices.”
A modest bright spot was a tame inflation indicator in latest data. The prices index came in at 37.0. This was the first contraction reading since December of 2006 and the lowest reading since December of 2001.

Also out on Monday is the report on construction spending for October. In September’s report, the Commerce Department said that the seasonally adjusted, annualized pace of spending fell by 0.3%. The decline was smaller than the 0.7% or 0.8% that analysts were predicting and August’s originally reported flat reading (0.0%) was revised to an increase of 0.3%. However, July’s previously reported decline of 1.4% (already revised from an originally reported drop of 0.6%) was once again revised to a decline of 2.4% — the largest in over two years.

The housing arena remained a weak spot. The last report said the pace declined in the residential sector by 1.3%. August’s originally reported increase of 0.3% was revised up to a gain of 1.9%, the largest jump since December of 2005. But July’s previously reported decline of 3.7% was revised to a steeper drop of 5.9%. Though July’s spending pace was lower, September’s was the second lowest since December of 2000.

On Wednesday, the revised report on productivity for the third quarter will be released. In the preliminary report released earlier this month, the Labor Department said that, according to preliminary data, the seasonally adjusted level of nonfarm business productivity (average output per worker per hour) grew at an annualized rate of 1.1% in the third quarter of the year relative to the second. This was the slowest pace of the year so far and the previously reported increase of 4.3% in the second quarter was revised to 3.6%.

A deceleration had been anticipated, however, because of the contraction reported in the advance report on gross domestic product. Also not unexpectedly, the lower productivity growth increased unit labor costs (ULC: average cost per unit of output). According to the initial calculations, they grew by 3.6% in the third quarter following a 0.1% decline in the second (revised from the previously reported decline of 0.5%).

Wednesday also brings the ISM index for the services sector of the economy. In October, the index came in at 44.4, down sharply from September’s reading of 50.2. As is the case with the manufacturing index, any reading of the services index under 50.0 reflects a general contraction in activity relative to the preceding month.

The current index, the NMI or Non-Manufacturing Index is new — first published last January. It is a composite of four seasonally adjusted indices: business activity, new orders, employment, and supplier deliveries. October’s reading is the lowest in the data series so far.
Before the NMI was instituted, the business activities index was the headline indicator on the services sector, but it is derived from a single question in the survey of business purchasing managers. The business activities index for October came in at 44.2, down from September’s 52.1. It was the lowest reading since last January’s 41.9 and the second lowest since October of 2001 when it came in at 40.5.

On Wednesday afternoon, the Federal Reserve will release its latest edition of the Beige Book, an anecdotal summary of economic conditions in the twelve Fed regions. The report is used as one of the background resources in the monetary policy committee’s deliberations. The next policy meeting is slated for the 15th and 16th of December.

The Beige Book rarely has much impact on the markets since previously released indicators have already sketched out the economic landscape. But any rhetorical variant, a particular focus or emphasis, could be perceived as a signal of Fed intentions and have some influence on traders. Currently, Fed watchers are anticipating another cut in the committee’s target for the fed funds rate (overnight borrowing rate between banks) and the discount rate (rate charged for loans directly from the Fed).

Thursday brings the weekly report on jobless claims and it will get added attention as it comes out a day before the employment report for November. The data collection periods for the two reports do not coincide but the trend in claims provides insight on the state of the labor market.
In Wednesday’s report, the Labor Department reported that the seasonally adjusted level of initial claims for state unemployment benefits fell last week by 14,000 to 529,000. The decline was not unexpected following two week’s of increases totaling 59,000.
In any case, readings over 400,000 are considered a sign that layoffs are outpacing hiring and the latest claims level was the second highest since July of 1992.

The four-week moving average, which smoothes out some short-term volatility, rose by 11,000 to 518,000 — the highest reading since January of 1983. For the forty-seven weeks of the year so far, the average initial claims reading has been 406,340. For the same period last year it was 319,085.
The report said that continuing claims fell by 54,000 to 3.962 million in the week ending November 15 (continuing claims must be at least a week old). This was the second highest reading since January of 1983. The four-week average rose by 60,250 to 3.929 million — the highest reading since January of 1983. For the first forty-six weeks of the year, the average continuing claims reading has been 3,203,413. For the same period last year, the average was 2,535,957.

Also on Thursday, the Commerce Department will release its report on factory orders for October. September’s report said that the seasonally adjusted level of new orders fell that month by 2.5%. The decline was stronger than the 1.0% that analysts had predicted. August’s originally reported decline of 4.0% was also revised to a drop of 4.3%, the largest decline since October of 2006.
All of the key sub-categories also saw sizeable declines. The order level outside the large but volatile category of transportation fell by 3.7% after a 3.6% decline in August. September’s drop was the largest in the history of the data series going back to 1992. Within the transportation sector, orders rose by 6.5%, the biggest increase in seven months.

Another closely watched category is that of orders outside the defense sector since those in the sector are not governed by standard market forces. Ex-defense orders fell by 3.3% following a 4.5% decline in August. Defense orders rose by 22.8%, the biggest increase since last December.
Orders for capital goods outside of the defense sector and excluding commercial aircraft are seen as a gauge of core business demand. The category saw a decline of 1.5% in September following a decline of 2.3% in August.

For October, recent predictions have called for a decline in the factory orders level of 2.7%. But Wednesday’s report on durable goods orders, which make up slightly more than half of all factory orders, indicated a drop 6.2%. This suggests that the overall order rate may be a larger decline than previously forecast.

On Friday, the often market-moving employment report comes out. In the report for October, the Labor Department said the seasonally adjusted level of nonfarm payrolls declined that month by 240,000. This was a larger decline than the 200,000 that forecasters had predicted. In addition, September’s originally reported decline of 159,000 was revised to a drop of 284,000, the biggest decline since November of 2001. August’s previously reported decline of 73,000 was revised to a drop of 127,000.

The report indicated that job losses were broad-based; losses were posted in both the goods producing and services sector. Besides the larger than expected loss in payrolls, the report said that the unemployment rate — the percentage of the active workforce without jobs — jumped from 6.1% in September to 6.5% in October. This was the highest reading since March of 1994.
For November, payrolls are expected to have fallen by between 250,000 and 300,000. The unemployment rate is expected to have risen to 6.8%. This would be the highest rate since October of 1993.

10:30 AM EST : There are no economic releases today and many traders are on the sidelines, extending the Thanksgiving Day holiday through the weekend. But this is the last trading day of the month, affording portfolio managers with their last opportunity to readjust their holdings before closing out their books for November.

The markets have been exceptionally volatile since August and they are especially vulnerable when trading volumes are low due to the loss of liquidity. With this in mind, many traders will attempt to take a conservative approach today, not wanting to rock the boat. That is evident in early action as both bonds and stocks are hovering in tight channels around unchanged levels . . . .

Source: LionMTS

Step 1: Do a monthly budget: Most of us have no idea how much money we can afford in a payment. By doing a monthly budget, you can see how much money you are willing to spend each month on a mortgage payment and stick to your instincts. One of the first questions I ask is “How much are you comfortable in spending on a payment”. Remember, after the paperwork is signed for the loan, your lender is not going to make that payment for you. You will want to make sure you can afford that payment and feel comfortable with your decision.

Step 2: Seek out a mortgage expert for your unique situation: If you’re buying your first home, seek out a lender who specializes with 1st time home-buyers. If you’re buying an investment property, seek out a mortgage lender who can help you maximize your investment property.

Step 3: Choose the lender based on professional service, not on the cheapest rate and fee structure: The old adage “you get what you pay for” is very true in the mortgage business. The best mortgage professionals will come highly recommended and want a little higher premium for their services. This does not mean that they cannot offer you great mortgage interest rates and closing fees, it just means that they do not work for free. Good mortgage professionals will be worth their price in gold. Your goal at the end of the day is to choose the correct mortgage product for your unique situation. The last thing you want to do is spend more money later having to refinance your loan because the wrong product was chosen upfront. Those costs add up over time.

Step 4: Stay away from Mortgage Gimmicks: Again, “if it sounds too good to be true”, this is probably a mortgage gimmick. That 1%, 2% mortgage rates are just that, they are a gimmick. If you heard on the news last night that rates are around 6.5% and someone advertises a 4% rate, then it’s probably a mortgage gimmick. Remember all lenders basically sell the same products and go to the same sources to get the money for mortgage loans. There is no such thing as a “Free” loan. We hear mortgage lenders advertise all the time no closing costs. This is a mortgage gimmick. All they are doing is charging you a higher rate and getting paid by the bank for selling you a more expensive mortgage loan. If a mortgage company is running a lot of slick commercials on TV or radio, be aware that there is a cost built into your loan to pay for those marketing costs. Just because they advertise low rates, does not mean you will get one.

Step 5: Get a personal referral for 2-3 mortgage lenders: Hear is one of the easiest ways to end up working with a trustworthy mortgage lender. Write a list of 4-5 people you personally know in your life who have always been great with their money and ask them if they know of a great mortgage lender. People who are good with their money seek out top notch mortgage professionals.

Step 6: Interview the mortgage lenders and ask a lot of questions: Let the mortgage company know upfront that you are interviewing them for their services. Ask them for personal references. Ask them how long they been providing their services, ask them how much they like their job. These 2 questions will tell you a lot about their character. Ask them about the areas they specialize in. Ask them how they communicate with their clients and ask them about value added services. Ask them about the costs of doing the loan, and which programs would be best for you. Then tell them your unique situation.

Step 7: Take action choose the right lender: By this time, you have decided which lender will be best for you. Let that person know that you would like to work with them to get approved for a home loan. Let them take your loan application and work on getting that mortgage pre-approval.

On March 6, 2008 HUD announced a temporary FHA loan limit increase in counties across the United States. The Economic Stimulus Act of 2008 permitted FHA to insurance loans up to 125% of the area median house price.  These loan limits now run out on December 31, 2008.  After that date all FHA loan limits will revert back to the county limits based on median home price.  The impact on the homebuyer community is huge.  In some counties this could change the maximum loan limit by hundreds of thousands of dollars.  If you are looking to buy a home using FHA, please call me now to see if this is going to impact your new FHA mortgage loan.