DECIDING-NEW CONSTRUCTIOIN OR EXISTING??

 

                                                          homesales.com 

Some folks know with certainty whether or not they want to build a new home or buy an existing property. But if you are one of the ones that can go either way let's go into some detail on what each involves. First we need to determine the pros and cons of either decision.

New Construction:

Pros:

- You get a brand new home with new warranties on mechanicals, appliances and a follow up program by the builder.  The prospect of having to replace a roof or windows is far in the future.

- You have control over design, paint color, cabinetry, and other extras that you might like in a home-the main factor affecting those decisions is your budget.

- You choose your builder and have the opportunity to research and speak with other clients of the builder to assess satisfaction with the product and the follow up.

-You may have a more energy efficient home with a new home than with an older pre-existing home.

-If you are someone who doesn't have the time to clean carpets, paint walls or make cosmetic changes to a home-new home construction may be the way to go.

Cons:

-You may have to move twice if you have an existing home to sell and it closes prior to your new home being ready

-building time frames are estimates and depending on the intangibles such as weather and acts of God you may not close exactly when you thought you would

-Additional Costs must be considered such as buying window blinds, errecting fences, landscaping, etc.

-If you are building outside of a subdivision costs such as site improvement, surveys, well and septic installation, and driveway expense take money out of the budget that you would prefer to go into the amenities of the home.

-The fact is that even though you may think you will control the process and the job will go exactly as planned-it doesn't. When I used to sell new construction I would tell people it is much like having a baby.  You know how you would like things to go-but there are often surprises along the way.

- Selling a home that is three to five years old that you build may be problematic in a development in which there is still new construction going on-competing with brand new homes for buyers can be difficult

Now for Existing Homes:

Pros: 

-Established yard, neighborhood, no ongoing mess from construction in the neighborhood

-Typically more value for the money.  Existing homes can often be purchased that offer more square feet at the same price as a smaller new home

-Generally speaking you have more control over the timing of your move

-Often existing homes include appliances and window treatments plus other amenities such as hot tubs, play sets, yards with mature trees, and fences.

-Many existing homes are newer and have many of the same features as brand new homes

-Existing homes and their neighborhoods may have more character than in a brand new development such as a park, sidewalks, streetlights, etc.

- A seller may be more negotiable than a builder 

Cons:

- updates and unanticipated repairs may cost more than you had originally considered

-You may be in for more work than you had bargained for as home improvement projects are never as simple as you think they will be

-Cosmetically the home may not be decorated in your style which means you will have to paint and redo

 

                                              tampatoenjoy.com
 In the end it is about personal preference, budget, and timing.  This is a very personal decison-I would not go out on a limb and declare one choice better than another-both have their merits.  Normally I would say if the thought of repainting, carpeting and personalizing a home is not something that you wish to contemplate you probably would be better off purchasing a new home. However, new home construction is an emotional experience and I have talked to many new home buyers who have said, "If I had it to do all over again I would..." Neither is perfect and each buyer must do the research and decide which is the best route to take.

USDA-NOT JUST A WAY TO EVALUATE MEAT

                                                yourerie.com
  Who knew the United States Department of Agriculture was in the mortgage loan business? Strange but true. The Department of Agriculture does have a division whose mission is the development of residential housing in rural areas. The following are the key components of the loan:

-100% financing

-Restricted to properties in smaller communities and rural areas of lower population density

-Income limitations based upon family size as the loan is designed for borrowers of moderate means

- Credit is also assessed along the lines of the FHA and VA loans. It is a bigger box than what is allowed with conventional lending. Most lenders will allow scores down to 620 on the USDA loan. We have one lender that allows 640 and above and one that allows 580 and above-but you can expect that the underwriting is much tougher for credit scores lower than 640.

                                           modernfarmer.com

 That's it in a nutshell-which is why this is one of the most attractive and popular loans in the State of Indiana and surrounding rural states. In many respects this loan is a hybrid of the VA loan and the FHA loan. It has an upfront funding fee of 2% which rolls into the mortgage like VA. It also has a monthly mortgage insurance premium for the life of the loan similar to FHA. It has no down payment requirement like VA, but there is no mortgage limit as there is in both FHA and VA.

  For young families who need their savings for other emergencies this is a perfect method of buying a home.

  The USDA loan is underwritten by two entities-the lender who provides the money for the loan and USDA that oversees each loan file to ensure that the home and borrowers meet USDA specifications.  Ultimately, USDA is underwritten to HUD guidelines in a fashion quite similar to FHA.

  In addition, even though the loan is specific to rural areas it is not a loan that can be used to finance farms or farmettes.  Acreage that is in use as tillable acreage makes a property ineligible for the loan. Similarly any barns that can be used to for machine storage or to house livestock are deducted from the value of the property.

                                                  neemaa.com

 The other consideration with USDA is the processing time.  If you are looking for a quick closing, USDA is not the best choice.  In Indiana due to cuts at the Federal Budget level the number of USDA underwriters are few.  During the height of the buying season USDA can take up to 50 business days to process-that is almost three months in calendar time.

  In order to increase your likelihood of getting a USDA offer accepted by a seller who is in a hurry to move we highly recommend that you take advantage of our pre-purchase underwriting approval process.  Your loan can be underwritten by the lender prior to you having a property under contract so that portion of the process is all but done by the time you select your perfect home in the country!

VA FINANCING-UNQUESTIONABLY THE BEST LOAN FOR THE VET

                                             www.baconbuzz.com

  I'm back. Aren't you glad?  After taking a couple days off to rest and regroup in Nashville, Tennessee I have returned to the spring housing rush. As I had anticipated, the moment the snow went away the phones began ringing.  Today's topic is the VA loan- a product that is shamefully underused as many lenders talk veterans into other loan products, erroneously thinking that the VA loan is in some way difficult to close or they simply don't have or understand the product.

  I will state here and now, that other than in a very few specific circumstances, there is no better loan for a veteran than a VA loan.  The VA loan offers the following benefits to the vet:

- No down payment required

-The seller can pay all closing costs

-A Gift can be used for any closing costs the veteran elects to pay

-The veteran can refinance the loan without requalifying

-Credit requirements aren't as stringent as many loans

-A disabled veteran is exempt from the upfront funding fee

-No monthly mortgage insurance is required

  I have had veterans call who mistakenly think that the only qualification is being a veteran-but that isn't true. As with any loan the borrower must show ability to repay the loan by being employed.  They also must show that they are able to handle credit so there are credit score requirements that very from lender to lender -typically 620 is the lowest eligible credit score for VA loans.

  The loan does have some property condition requirements-but those are requirements that most borrowers would want in their home anyway. The include 100 amp electrical service, 5 years life in the roof, a furnace and air conditoner that work when turned on, no standing water in the crawl space or basement, no broker window-normal items.  The VA loan allows you to have a barn on the property or up to 10 acres of land.  You can also build a new home using VA as the end loan. In general the interest rate on the VA loan is lower than its conventional counter parts. The

 The loan is open to all active duty members, honorably discharged veterans, members of the reserves and the national guard.
  Do not let someone talk you out of this one-check it out before you consider any other type of financing.

www.sodahead.com
 

 

CUTTING RED TAPE-FHA...A GOVERNEMENT PROGRAM THAT REALY WORKS

  Lately it is in vogue to criticize the Federal Government as being too big, too bloated and full of too many do-nothing people to be effective. No doubt there are examples to support that theory but let's talk about a government program that works extremely well...the FHA mortgage loan.  This loan has great interest rates, is insured by the Federal Government and works like a well oiled clock. If you want to see government red tape cut-this is the program.

                                                                           agbeat.com
  For a borrower that may not have the credit scores to qualify for a conventional loan or have saved enough down payment money for a conventional mortgage this loan may be the ticket to home ownership.  Let's reveiew the characteristics of the FHA loan:

-Credit scores may be significantly lower with the FHA loan. The sweet spot for FHA is 640-679 but there are lenders that will accept FHA loans down to 580.  At a 580 there have to be compensatory factors such as a larger down payment, excellent job history, a history of savings etc. but suffice it to say, FHA is a bigger box credit wise.

-Down payment requirements are lower than conventional lending. FHA requires a 3.5% investment.  This down payment may be gift funds from a family member-so the borrower can get help from mom and dad if necessary.

-Job time is less stringent that a conventional mortgage. While FHA requires employment history, if a borrower has changed jobs or just obtained a new job after being unemployed for a period of time, FHA will close on a mortgage after 30 days on the new job assuming all probationary periods have been met. Keep in mind there will need to be previous employment or education history required.

-Interest rates are usually lower than conventional rates-sometimes as much as half a percent.

-Loan terms come in the 30 and 15 year fixed rate variety as well as adjustable rate products.

 What are the down sides of this loan you ask?

                                                            learndash.com

 There must be some, right? This loan is administrated by a government agency. The down sides aren't the kind that you would think of when dealing with a bureaucracy. For instance-the loan closes in about the same time frame as any other loan.  There is no sign off by a government agency.  HUD has decided that mortgage lenders are perfectly capable of underwriting to HUD standards.  So if you want to consider downsides let's try these on for size:

-Higher mortgage insurance.  FHA took quite a hit during the housing downturn. And in order to survive, mortgage insurance on FHA loans increased significantly.  FHA has always had a mortgage insurance up-front factor that rolled into the total loan amount-it still does-1.75% of the loan amount.  FHA also has a monthly factor of 1.350% which is roughly double the mortgage insurance on a conventional loan.  But the real kicker is that the mortgage insurance never drops off the loan unless a 10% down payment is used. So that is one thing to consider. But-if you need the lower down payment and your credit scores put you squarely in FHA land, it is still a great loan.

-Condition of the property. I don't really consider this a negative. Property condition is being scrutinized by every type of loan. With FHA there is a HUD checklist that is used by the appraiser to determine whether or not the property meets minimum condition standards. Such things as roof life, 100 AMP electrical service, no plumbing leaks etc. are considered and noted to be repaired prior to a loan being closed if satisfactory conditions are not present. These are all items that most buyers would want in working order to purchase a home anyway, so I don't think this is cause for rejecting the use of the loan.

  A couple other things about FHA that are worth noting:  FHA does have several rehabilitation products if one uses the loan to purchase a home that is in disrepair.  Keep in mind that not every lender has these products and the loan products themselves have their own set of rules. But if you have the stomach for repair and upgrading and want instant equity you might look into the 203K streamline, or the $5000 limited repair loan. If you do have a taste for regulation you can try the full blown 203K loan that allows up to $50,000 for repairs.

  And HUD offers buyers who wish to live in a property first choice on the purchase of their repossessions-in specific instances HUD offers a $100 down program. That $100 down loan program can be used with the FHA 203K streamline repair loan to get into a primary residence for very little cost and repair the property as well. Can't beat that-even with a big stick.

  FHA also allows a non occupying co-borrower loan for parents who want to assist their children in their first home purchase if the child doesn't yet have the income to afford the mortgage on their own.Or it can work in reverse-a child can assist a parent who is on limited income buy that way as well.

  And finally-if you have ever wanted to be a landlord FHA will allow the purchase of up to a four unit property as long as the home owner lives in one of the units. So a buyer can purchase a property that will pay the mortgage. 

  In many, many ways, the FHA mortgage loan is a great loan product with an enormous amount of flexibility.  It is a government program at its finest.

CONVENTIONAL LENDING - THE GOOD, THE BAD, AND THE UGLY

   That got your attention, didn't it? But when we are talking about conventional lending we are speaking of the basic, the standard, vanilla lending-

                                           zestyflavors.com

White bread if you will.  Conventional lending may or may not be the best loan for any particular individual, but it is the loan that most folks aspire to.  Here are the characteristics of a conventional loan:

-Credit Score of 680 or above (the score can be lower-I will go into that in a minute)
-Down payment requirement of 5%
-In addition to the 5% down, many times the loan requires two months of mortgage payments in assets
Lower mortgage insurance requirements than FHA, and no upfront  mortgage insurance requirement as opposed to the government loans, all of which have an upfront mortgage insurance or a funding fee that rolls into the loan.
-No specific credit line requirements in most cases (i.e. number of credit account open and in use)
-Monthly mortgage insurance falls off the loan automatically at a 78% equity position-normally about 11 years into the loan. FHA and USDA monthly mortgage insurance are in place for the lifetime of the loan.

 Interestingly enough, interest rates on conventional financing are higher than the government counterparts. (Unless someone is interested in an adjustable rate mortgage.  I haven't had too many hands in the air to take on one of those lately.) But if payments are compared-the conventional with the higher rate will beat out the FHA with the monthly mortgage insurance most of the time. VA mortgage payments often beat out a conventional as  VA has no monthly mortgage insurance.

Let's look at an example:

                                         aalanturning.com

Let's assume a mortgage loan of $150,000
The conventional loan has an interest rate of 4.5%, the FHA and VA loans have a rate of   3.875%-here are the payments plus Mortgage insurance:

Conventional with 5% down - $841.16
FHA with 3.5% down            $886.45
VA-no monthly MI                 $720.52

 Tell me again why conventional lending is better for a veteran? This is what many of my competitors who are either unfamiliar with or do not have the VA product are telling vets.

 In any event, most people who are not eligible for VA would prefer a conventional mortgage. So the question is-what if one's credit scores are below 680? 

 One solution is putting 20% down. It is the mortgage insurance companies that dictate what credit score they will insure if less than 20% is put down. Some will go down to 660, but the interest rate will increase accordingly. At 640 even with 20% down the rate will be significantly higher too-but having a lower credit score will not necessarily bump a borrower out of conventional financing. They will just pay more for the loan. Mortgage lending is all about risk, remember. Lenders want a reasonable assurance that they will get their money back and as credit scores decrease the risk of foreclosure goes up-hence the much higher mortgage insurance on FHA as FHA lends money with lower score requirements.

 Down payment requirements is another reason why some borrowers turn to a government loan rather than conventional.  FHA only requires 3.5% down and the money can be a gift from a family member.  USDA and VA have no down payment requirements. Typically, conventional lending requires 5% down and the 5% has to be the borrower's own money.  There are exceptions-we have a lender that will allow the full 5% to be a gift from a family member. However the credit score requirement in that situation goes up to 720.  Once again risk is involved-statistics bear out that the less money a borrower has in a transaction the likelihood of foreclosure increases. And I think it can be mentioned that many folks who need low or no down payments may not have the cash reserves to weather an economic downturn.

 For the most part, conventional loans are a bit easier to process and close. But don't think for a minute that a conventional loan is the answer to a house that does not meet minimum condition standards.  Mortgage lenders learned a lot in 2008 when the housing market crashed. One of the things they learned was that they were sitting on a lot of foreclosed homes that were condition disasters because there had been no condition standards for conventional lending previous to that time. So appraiser are the lender's eyes and will note any substandard conditions and a lender can and will refuse to loan on those properties.

  In days to come, in preparation for the spring buying season I will talk about the government loans as well-the good the bad and the ugly.  All in all I try to match the right loan to the right borrower so that as many people as possible can achieve the dream of home ownership.