FHA says, ‘enough is enough’ and is taking charge of policy in order to curtail another recession. The internet is buzzing with the new FHA regulations that are sure to have an impact on the Boston Real Estate Market.

“Due to the increase in mortgage defaults, the Federal Housing Administration (FHA) is changing its lending criteria. As we all know, FHA is not directly involved in lending but it insures the lenders in case the borrowers default their mortgage dues. FHA has proposed changes regarding the insurance premiums, mortgage down payments etc. Just take a look:

Rise in mortgage insurance premium: The borrowers, who take up FHA sponsored loans, have to pay an insurance premium of 1.75% of the loan amount. This has to be paid upfront but can be rolled in the loan. FHA is planning to increase this premium to 2.25%. This is the second time in the last 2 years that the insurance premiums on FHA loans will be raised.

Changes in down payment requirements: Presently, the minimum down payment requirement for a FHA backed loan is 3.5%. This limit will remain the same but the borrowers who have a credit score less than 580 will have to make a down payment of 10%. It is true that FHA loans are not solely based on credit score, however, lenders prefer borrowers who have a score of 620.

Experts are of the opinion that FHA down payment requirement should be raised further. Some of them have proposed to increase the down payment from 3.5% to 5%.

Changes in sellers’ aid to buyers closing cost: FHA is also planning to reduce the amount that sellers can offer as aid to the buyers for their closing cost. Earlier the sellers could offer 6% of the purchase price. As per the proposed changes, they would be able to contribute only 3% of the purchase price.”

“These new rules, will make it tough for borrowers to qualify for a FHA loan. However, these rules are necessary in order to avoid another real estate crisis in the near future.” (Mortgage Fit)

This is big news because the FHA just recently changed requirements on how short sales can be purchased by home buyers.

If you haven’t filed your taxes yet don’t worry you still have until April to get everything together. The folks over at Mortgage Fit have given us some great tax tips. One thing is for sure whether your buying a home in Boston or Quincy you may want to get things wrapped up quickly for your stimulus tax credit.

“The tax season is knocking at the door. You should know the tax breaks so that you would be able to receive it’s benefits. You may get some extra tax breaks if you’ve bought a new home, purchased a car or if you’ve a college student in your family. Have a look at the available tax breaks in 2010:

Homebuyers…
All the first-time homebuyers who’ve bought a home after January 1st, 2009 will be eligible for a tax credit of up to $8,000. The best part is that you won’t have to repay the tax credit if you live in the house for the coming 3 years. You will be able to get this benefit this year even if you close your home purchase by June 30, 2010.

If you are not a first-time buyer, you’ll still be receiving certain benefits. If you are staying in your home for 5 of the last 8 years before you purchased a new house (bought after Nov. 6, 2009), you’ll receive a tax credit of $6,500 for your 2009 taxes.

Homeowners facing problems…
If you’ve faced a short sale and the deficient loan amount was forgiven by the lender, then that amount could be held taxable by the IRS. It would be considered as your income. However, there are certain exemptions in this regard. If your mortgage company forgives up to $2 million in debt on your primary home, you can exclude this from your income. However, you can get this benefit if the sale of the property took place between Jan. 1, 2007, and Dec. 31, 2011.

Benefits for unemployed…
There is a tax-free unemployment compensation of $2,400 which is applicable for 2009 only. However, the health insurance premiums which you’re paying for the continuation of your coverage under COBRA, is not tax deductible. If you take them as a part of a medical expense deduction and get your taxes itemized, then you can have them deducted.

Car buyers…
The cash-for-clunkers payment (also known as Car Allowance Rebate System, it offers $3,500 – $4,500 to people who trade in an old car for a new one which has higher fuel economy.) is not taxable.

College students…
Households with students in college will receive the new American Opportunity Tax Credit worth up to $2,500. Also, 40% of that amount is refundable. The best part is that all those who owe no taxes can get a refund of up to $1,000 for each eligible student.”

With Quincy home prices at an all time historic low we are seeing many first time home buyers move into Quincy homes. Buyers in the market have almost completely reversed themselves from 3-4 years ago.

Many first time home buyers call me up everyday with no idea of where to start the home buying process. Some of these buyers have saved up during boom times and bring all cash to the table, but others are buying by using finance options.

You may have the desire of getting a home of your own, but lack of finance may prevent you from fulfilling your dream. This is where a mortgage can help you. It provides a financing option that can make your dream come true.

Mortgage is a legal process through which a borrower takes a loan for the purchase of residential or commercial property. The same property is kept as the security for the debt.

In general, a mortgage transaction involves two parties – the lender or the mortgagee and the borrower or the mortgagor.

Mortgage lenders are concerned about your financial strength in paying for the loan costs and making the monthly payments to clear the debt. So, they will consider your credit score, your monthly gross income, and the amount of cash you can pay as the down payment. The higher your score, the lesser is the risk in offering you the loan.

The loan amount depends on the value of your home and the down payment. The interest rate charged on your loan depends upon your credit score, discount points and down payment. The better your score and the higher your down payment and points, the lower is the rate offered. Getting a lower rate is also possible if you can pay a part of the loan amount as prepaid interest or points. You may get a loan at fixed rates, variable or adjustable rates or a combination of both the rates.

The loan application that you have submitted goes through a process of review before the lender gives his approval. After the lender approves the mortgage, he decides upon the date of closing. The closing involves the signing of legal documents including a mortgage note which obligates you to repay the loan in time.

At closing, the lender requires you to pay for the costs of originating and processing the loan. You will also have to deposit property taxes and insurance premiums into an escrow account which ensures that these payments will be paid in time. The rest of the taxes and insurances are paid along with the monthly mortgage payments in order to protect the lender from tax liens and uninsured losses.

The monthly mortgage payments include the following:
The loan principal is the amount that you borrow in order to purchase a property.

The interest that you pay for taking the loan. The interest payment depends on the mortgage rate which fluctuates with changes in the economy.

Escrow payments including property taxes and insurances to prevent losses against fire, theft, and disasters.

PMI (Private mortgage insurance) premiums which you require to pay along with monthly installments if you have made a down payment of less than 20% of the sale price or home value, whichever is less.
The mortgage loan is paid off within a specified time period known as the loan term that varies from 10 to 50 years. The monthly payments vary depending upon fluctuation in rates as in case of adjustable-rate mortgages, or ARMs. The payments also change on the basis of fluctuation in taxes, and insurance premiums for both ARM and fixed-rate mortgages.

While you are repaying the mortgage, the title of ownership of the property still remains with you. But if you fail to pay off the outstanding balance, the lien created in the mortgage allows the lender to take away your home. He gets the right to sell off the property in order to get back the loan balance.

You may apply for a mortgage with a bank, a credit union or a broker depending upon your requirements. But in each of these cases, you need to shop around for the best loan package, that is, which offers a reasonable rate and does not require extra charges in the form of hidden fees.

Contribution in part courtesy of Mortgage fit and Jeremiah Peterson.

If short selling a home in this economy wasn’t bad enough, the added burden of a HOA fee can complicate things even more. The HOA fee is often overlooked when considering a short sale.

If this fee isn’t taken into consideration at the start of the process things can get very sticky and unravel days before closing. In order to make sure the status of the HOA fee will not harm the short sale process the association should be contacted. Think of the HOA as a ‘third lien’ on the property.

After talking with many different Home Owner Associations the process of how they handle short sales varies. For example, one complication that can arise days before the close of escrow is that delinquent HOA fees can be sold to collection agencies. Some HOAs only manage, service, regulate and process payments.

When it comes to delinquent fees policies substantially vary. Some HOAs have taken it upon themselves to create in-house delinquent fee collection departments. In this case, negotiating with them will be significantly easier then an outside agency.

Why? This is because outside agencies are often located across the united states. Most of these agencies handle more then just delinquent HOA fees. The departments are often very busy and slow to respond to payoff requests. The payoff request might need to go through several levels of management before a decision is made.

Things can get even more complicated if the account is referred to one of these agencies and then the home owner charges the account off. Not only will this slow the whole process, but might actually cause the charge off to be reported to credit reporting agencies.

Even when the HOA collection department is handled in-house complications can arise. These agencies are businesses looking to make money. They understand that if the short sale is not approved by them it could kill the deal.

Thus, they have a certain degree of clout when negotiating a short sale. Think of this like a ‘two-edge sword’, HOA approval is necessary, but if the home goes into foreclosure they might get absolutely nothing. They really want to cooperate with the distressed home sale, but have figured out that no matter if the short sale gets approved or not, they can still get money.

They do this, by requiring the home owner to pay a certain portion of the delinquent fees before responding to short sale requests. Again, this is because if the short sale doesn’t get approved and goes into foreclosure the HOA would get nothing. HOA fees are notoriously overlooked when considering the whole scheme of the short sale. If the HOA doesn’t sign off on the payoff then money will have to come from someone (i.e. buyer, seller, 1st lien holder, 2nd lien holder, etc…). In this respect they are very much like home mortgage.

Of course, the HOAs are not just ‘mortgage hungry money grubbers’ they understand that if the HOA fee is not being paid, then the HOA is loosing money. For this reason they want to get someone who can pay the fee into the property quickly. Because the delinquent fees are often minimal seeking a deficiency judgement after the sell is often not profitable. Before starting a short sale it’s a good idea to get details on the HOAs policies.

Do they transfer the delinquent fees to an outside agency? Is there an amount required to get a short sale demand request answered? Can the home owner stay current or prevent transfer if a portion of the fee is paid every month? Can the buyer ‘pre-pay’ the fee during the escrow period. What are the HOAs pay off policy? Is it a percentage of the sales price or amount charged off? Will the debt be forgiven or will the HOA seek a deficiency judgement.

“When the Case-Shiller index reports that home prices have reversed course and are finally rising again, and you know that Case-Shiller has been the gloomiest, scariest-headline-producing monitor of the real estate market for the past three years — some say: We have truly turned the corner here.”

The Mortgage Disclosure Improvement Act has come into force upon the Quincy real estate markets. The days when loans could be given without verification are over. These new lending practices will make buying Quincy homes even harder. However, with the help of a good real estate agent these new obstacles can be easily overcome. Let’s examine what the new laws do,

“Collection of Fees: The only fee that can be charged to the borrower prior to the loan application is a credit report fee. This fee must be reasonable, which is usually between $12-35 dollars depending on the company and whether the report is for a single borrower or joint.

New Business Day Definition: Saturdays are now included as business days on all regulations. If you see any paperwork that discusses time lines for a mortgage, Saturdays are included. Sundays and federal holidays are excluded.

Timing of Disclosure: the law has always required disclosures within 3 days of the application. The new added regulation is that the client cannot close within 7 days of the application. This gives the client time to review the loan terms offered to them

APR (Annual Percentage Rate) Change: If the APR increases by more than .125% since the last disclosure, the borrower must be re-disclosed and cannot close for 3 days from last disclosure.”

The bottom line is before working with a Quincy Real Estate agent you need to ask yourself, is this person well organized and detailed oriented? Most agents in today’s market have to do double the transactions to stay in business.

With these new laws in place, if your agent does not have a stellar stream-lined process you may end up having to pay a hefty price. I’ve found that nowhere is this more true then when dealing with Quincy short sales. This is why I always explain to my clients that I have a very detailed process to handle any transaction.

The current Quincy and Brookline markets are difficult right now for FHA buyers. If you plan on asking for more then 3% closing costs from the seller in a short sale transaction you are better off going with an REO.

The short pay lenders won’t approve anything above 3%. Quincy real estate agents are becoming aware of this as more and more Quincy short sales are being pursued.

While discussing this very issue at several marketing meetings; I’ve found that several Quincy and Brookline real estate agents reject 3%+ closing cost FHA offers on their short sale listings without thinking twice.

Don’t let your agent fool you, just because you are asking above listing doesn’t mean a thing in the end if you can’t come up with closing costs.

Here’s some advice if you want to get your FHA offer accepted on a short sale; write the offer, but don’t ask for more then 3% closing costs. Still ask the seller to cover escrow fees, recording fees, etc…, but only ask for 3% seller credits for anything else (i.e. down payment).

Another way to make sure your FHA offer gets accepted is by having your agent contact the listing agent to make sure the 3% is not a problem. If the listing agent says, ‘yes it is a problem’ make sure to provide a bank statement that shows you have enough funds to cover closing costs.

By following these steps and offering a competitive offer you will increase your chance of getting your offer accepted with an FHA loan (and might even get 3% closing funds in the process).

The Quincy and Brookline real estate markets are still seeing multiple offers on 300k and less homes.

A recent office listing on a 300k Quincy home solicited over 7 ‘qualified’ offers.

Some of these offers were FHA with requests for closing costs. Still, after speaking with each Quincy agent who submitted an offer I found that in every case the offeror had additional bank account reserves to cover closing costs.

I report about ‘qualified’ offers because we have been getting some ‘unqualified’ offers too. I categorize ‘unqualified’ offers as those that are FHA and request 3%+ closing costs with out verification of closing funds.

An offer like this may get accepted on a regular sale; However, when most of the Quincy homes for sale are bank owned or short sales FHA 3%+ offers without verification of closing funds just don’t fly.

When the 200k and less market is generating so many multiple offers an alternative non-FHA offer is not hard to find.

With such a crazy market this begs the question why buy now?

A recent client was looking at home. The client asked me a very fair question that any agent might get asked. The question was, “why should someone buy in this market?” I answered, Why would someone not want to buy in this market? (was my reply) With prices at an all time low now is the perfect time to buy!

I’m seeing Quincy homes NOW with purchase prices so low that the mortgage, home owners insurance and taxes combined would be lower than paying rent. Actually a few of them if you bought then rented out can see a positive cash flow.

Although, it’s getting tougher to buy distressed homes with FHA loans, it still happens (even with closing costs). Unemployment is still a major issue holding prospective buyers back, but the National Association of Realtors is easing this concern by putting special consumer protection programs in place.

So, why would someone not want to buy a Quincy right now? If your not buying all cash it’s all about balancing debt ratios. If your debt ratio is too high it might be better to pay off some of that existing credit and be able to buy later, but stronger and better.

Buying a home in Quincy is a huge decision. It’s one of the most important decisions a person can make. Without careful steps and professional advice the process can go from smooth to stressful. In order to make the home buying experience fun instead of stressful it’s important to have an idea of what is going to be expected of you. Below is a check list of items that you should gather before thinking about buying a home. There are professionals that can help you find Quincy homes for sale, but if your thinking about taking on a mortgage the below checklist is a must.

Use this helpful checklist to assist you in gathering your documentation. It is important to have this done prior to applying for your loan.

INCOME DOCUMENTATION

• Salaried employees to provide copy of 1 complete month of most recent pay stubs and last 2 years of W-2’s.
• Self-employed to provide copy of last 2 years signed tax returns (include all schedules) and the current year’s profit and loss statement, if possible.
• Retired and/or receiving pension to provide copy of social security awards letter and/or pension benefit awards letter.
• If you are claiming rental income provide copy of current lease(s) and “schedule E” of your past 2 years returns.

ASSET DOCUMENTATION:

• Copies of 2 most recent months bank statements from checking and savings accounts (all pages).
• Copies of 2 most recent months of investment/brokerage account statements.
• Copies of last quarter’s statements for all stock, bonds, mutual fund, IRA, and 401(k) accounts.

OTHER DOCUMENTATION:

• Copy of contract if purchase or recorded deed for property if refinance.
• Copy of last mortgage statement on all mortgages and second loans.
• Copy of divorce decree & judgment if previously married.
• Copy of bankruptcy court discharge papers, if applicable.
• Copy of homeowner’s insurance declaration page 7 days prior to closing.
• Photocopy of your drivers’ license.
• Title insurance forms (schedule A & B only) if refinance.

Contribution Courtesy of Eric – Dream Home Financing LLC – http://www.dreamhomefinancing.com and eHome Staging.

1. Are you experienced with Short Sales? In today’s Quincy real estate market it’s essential that your real estate agent be well versed in the short sale/pay market. Since Obama’s administration has implemented so many programs that promote foreclosure avoidence the local Quincy real estate market can definitely expect more short sales in 2010.

A short sale (or short pay off) is when a home owner sells a home for less than what they currently owe their mortgage company. Often times home owners in financial trouble facing a foreclosure on their Quincy Home will request that their mortgage company take a fair market value sale in exchange for payment in full on any outstanding liens. Banks are willing to do this because foreclosing on a home can often cost an upwards of 20% of the FMV (fair market value).

In allowing the short sale lenders don’t have to pay for expensive foreclosure lawyer fees, home upkeep, and other costs associated with foreclosing on someone’s Quincy Property.

2. What do you suggest about rate locking a loan for my Quincy Home?

Although, your lender should be the one to answer this question, if the agent doesn’t know than move on. Mortgage rate locks are one of the most basic aspects of a real estate deal. A Quincy real estate agent should be able to tell you exactly how long you should request for your lock.

A Mortgage rate lock is when you literally ‘lock in’ to a certain mortgage percentage rate. For example, say Countrywide home loans is offering you a rate lock at 6% for 45 days. This means if interest rates change by +/- a % point your rate stays at 6% as long as you close your property’s contract by the 45 day limit. Asking your Quincy real estate agent this is essential because they are the ones who are very familiar with the local Real Estate market. Your agent should know if homes are closing in 30 days or if because of all the Quincy foreclosures and short sales property contracts are taking 45 days or longer.

3. Are you familiar with local area asset managers?

Since within the last 2 years (before the Obama administration) there has been so many foreclosures bank asset managers are working overtime. Banks will often liquidate hundreds and hundreds of Quincy homes to try and lighten up their financial portfolio which is heavy burdened with Quincy REOs (foreclosures). Knowing who the local popular asset managers are means that you as a home buyer will have an advantage to all those homes being liquidated.

4. Will you use the Internet to market my home?

Now-a-days the Internet is the go to place for Real Estate. There is perhaps no other industry that has changed so much with the advent of the technological age than the real estate industry. If your agent doesn’t have a dedicated plan on how to use the Internet to market your home you should be concerned. In real estate often times home selling comes down to numbers. For example, if you can get 50 people to view your open house, isn’t that better than 25?

Likewise, if you can get over 150 people to inquire about your home online isn’t that better than just 25 at an open house?

If your Quincy real estate agent says they are just going to post your home on craigslist or their own website and leaves it at that, fire them!! Unless they can tell you that they generate a significant amount of web traffic to your listing than craigslist and an agent’s website don’t go far enough in today’s market. Inquire about the web 2.0 community and how it can help sell your home.

Remember in real estate sometimes it’s all about the numbers game. Ask how much traffic their site gets. An increase in web traffic often times means more inquiries about your home.

5. Do you have buyers waiting in line to buy homes?

Any good agent will be able to show you that they have a whole stack of buyers/investors that are waiting to buy property. With so many technological avenues for buyer lead generation their is no excuse for your agent to not have willing investors on hand.

While working with Quincy and Brookline home buyers I’ve noticed that closing costs are now a significant issue.

In a progressive market place closing costs become a different animal because high prices often filter out buyers who would otherwise be able to afford a new home in Quincy, MA.

With prices at an all time low in Quincy a new breed of buyers are developing. These buyers come to the negotiating table fully equipped to buy a home. It’s surprising to see entry level McDonald’s employees enter the buying pool now.

Because there are a high percentage of FHA buyers in Quincy and Brookline closing cost becomes a major issue that could make or break a deal.

Closing Costs are the expenses of the borrower at the time of closing of the mortgage loan. These costs comprise of the following charges.

Loan origination fee:
The origination fee includes the cost of making the mortgage loan. It is also known as origination point. These points are not tax-deductible.

Discount points:
These are prepaid interest demanded by lenders in return of lower interest rate charged on the loan amount. Each discount point equals 1% of the loan and reduces the loan amount in most cases by 0.125%. These points are tax-deductible.

Appraisal Fee:
The Appraisal fee is charged for making an estimate of the value of the property which is kept as security for the mortgage loan. An appraiser appointed by the lender carries out the appraisal. The loan amount is based on the appraised value or the sale price, whichever is the least.

Credit report fee:
Lenders ask for a credit report of the borrower from any of the three credit reporting agencies like Equifax, Experian and Trans Union. This is mainly done to assess the credit worthiness of a borrower. Lenders demand a fee for reviewing the credit report.

Attorney’s fees
These fees are paid to an attorney for preparing and reviewing all the documents needed to close the loan. The attorney demands charges for conducting the closing on behalf of the lender.

Survey fee:
Lenders require a fee for conducting a survey which includes a verification of the official boundaries of the property.

Pre-paid items:
Lenders often require the payment of prepaid items like insurance premiums for private mortgage insurance, homeowner’s insurance including hazard insurance, and real estate taxes. The maximum amount that a lender can demand from a borrower is limited by the U.S Department of Housing and Urban Development.

Title fees:
Title fees include charges for title search and title insurance. Through a title search, the lender verifies who the actual property-owners are and whether the property is free of liens. The title search company then issues a title insurance which protects the title of the property against any unpaid mortgages and judgments.

In case a claim is made against the property, the title insurance provides legal protection and pays for court fees and related costs. The title insurance policies are of two kinds – lender’s policy and borrower’s policy.

Loan processing fee:
It includes fee charged by the lender for preparing the mortgage loan application and other legal documents related to the mortgage.

Recording and transfer charges:
These charges include fees paid to the local government for filing official records of a real-estate transaction.

The closing costs vary from one lender to another across different states and counties. Often the seller may finance the closing costs. Generally, it amounts to 3%-5% of the loan amount. Borrowers get a rough estimate (Good Faith Estimate) of the closing costs within 3 business days of applying for the mortgage loan. They also get a list of the actual costs a day before closing. The document with the actual loan fees is known as the HUD-1 Settlement Statement.

Story contributed in part by Mortgage Fit and Simon King