Central Valley Real Estate

How long after a bankruptcy, foreclosure or short sale until I can buy again?

If you are a homeowner in distress, there are several reasons why you should attempt doing a short sale rather than simply allowing your home to be foreclosed on by your lender. Here is yet another reason--much less time before you are again eligible to purchase another home.

According to Fannie Mae Announcement 08-16, dated June 25, 2008 and implemented as of August 1, 2008, this is how much time must pass before a borrower can get another Fannie Mae-backed-loan:

New "Market Conditions Addendum" required for appraisers

Effective April 1, 2009, the Federal Housing Administration announced that it will require appraisers to use the Market Conditions Addendum (Fannie Mae 1004MC, Freddie Mac Form 71). According to Mortgagee Letter 2009-09 released on March 23, 2009, this will ensure greater transparency and accuracy...

When your mortgage application is rejected

Don't be surprised if your friendly lender, the one who invites you to sit down and apply for a mortgage, ushers you politely out the door empty-handed after you've chatted a bit.The sudden chill isn't personal. The Mortgage Bankers Association, or MBA, in Washington, D.C., estimates that about half of all mortgage applicants... (continue reading here)

Where To Start If You're Afraid To Lose Your Home

You're either behind on your mortgage already, or your rate (and payment) are about to jump significantly, or perhaps you're current on your mortgage but you owe more than it's worth and now you need to move. What do you do?

There are an over-abundance of people and companies who will try to tell you what you should do. But who can you trust?

The Homeownership Preservation Foundation (HOPE) is a non-profit organization funded by the financial services industry and Fannie Mae that operates a hotline to help homeowners understand the options available to them and how to work through them. Each HOPE counselor is HUD-approved and has a credit counseling certification. As a non-profit, the services are provided free of charge and without bias of any kind.

HOPE is probably one of, if not the best place to start. The number is 1-888-995-HOPE. It is open 24/7 and has operators that speak English and Spanish. HOPE can also be found on the web at http://www.995hope.org

If you are looking for a local non-profit credit counseling agency, you can also check out http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm and search for local HUD-approved counseling agencies located throughout the country.

If you are in a pickle, do something about it. If you're not sure where to start, and want good quality, unbiased information, this is the best way for you to start.

Private Mortgage Insurance, Part 2 of 2: PMI vs. 80/20 financing

Until recently, a popular financing option for low-down payment borrowers was to secure a primary fixed-rate mortgage for up to 80 percent of the purchase price, then obtain a second adjustable-rate, or “piggyback,” loan for the down payment. The advantage to this approach was that thanks in part to historically low interest rates, there was little difference between the rates on first and second mortgages. So combo loan payments were often less expensive than a single loan with private mortgage insurance.

These combo loans aren’t as attractive in today’s uncertain rate environment. But an option that had fallen out of favor during the go-go years of steadily falling interest rates—a single, fixed-rate loan with private mortgage insurance—might now be worth your attention.

In fact, it’s already drawing interest among borrowers. Nearly 131,000 borrowers opted for loans with private mortgage insurance in September, the most recent data available as of late November, according to the Mortgage Insurance Companies of America, a trade association representing the private mortgage insurance industry. That activity represented a 1.1 percent increase from the previous month and a 16.8 percent increase from the July total.

There are several reasons the fixed-rate loan with mortgage insurance makes sense:

Cost competitiveness
You might be surprised to find that a single loan with monthly mortgage insurance premiums offers a competitive payment. What’s more, single-premium mortgage insurance—where the full premium is paid at closing and can be financed into the loan—often provides the lowest monthly payment available.

For example, on a $200,000 loan with 10 percent down, a mortgage at 6.8 percent with single-premium mortgage insurance would cost $1,198 per month. In comparison, combining an 80 percent first mortgage with a home-equity line of credit at 9.9 percent would cost $1,217 per month to start, with the possibility that the payment could increase if interest rates continued to climb. A traditional loan with monthly mortgage insurance would cost $1,251 per month.

Possible payment reduction
Instead of worrying about rising payments, buyers who opt for a loan with mortgage insurance and whose homes appreciate sufficiently to allow cancellation of their mortgage insurance might actually be able to lower their payments or receive a partial policy refund in the case of single-premium mortgage insurance.

Let’s go back to the example used above. If the purchased home appreciated in value an average of 5 percent annually, an assumption in line with the historical performance of real estate, a home owner who opted for a traditional mortgage insurance loan would be able to cancel the PMI after the third year (upon reaching the 20 percent loan-to-value ratio) and have a reduced monthly payment of $1,095. With a single-premium mortgage insurance loan, the home owner would keep the $1,198 monthly payment, but would receive a premium refund of about $1,400 when the insurance was cancelled. The combo loan payment would still be $1,217—or higher if the rate on the adjustable mortgage goes up.

Easier access to equity
With both the first and second lien positions locked up in a combo loan, owners who want access to any future equity accumulated in the home for a remodeling project or addition will be hard pressed to find a lender willing to accept the third position. But with a single loan secured by mortgage insurance, a home equity loan may be easier to obtain.

Predictability and security
With a single fixed-rate loan combined with mortgage insurance, home owners won’t have to worry about increasing payments.

Private Mortgage Insurance, Part 1 of 2: PMI is tax-deductible in 2007

Mortgage insurance will be tax-deductible in 2007. For some homeowners, the new law means it will cheaper to get mortgage insurance instead of getting piggyback loans.

The 109th Congress passed the tax law in its final hours. Hundreds of thousands of homeowners will save a total of $91 million when they file their tax returns in 2008, according to estimates prepared by the mortgage insurance industry.

"This is really going to help close to a million Americans who will buy a home next year using mortgage insurance," says Kevin Schneider, president of U.S. mortgage insurance business for Genworth Financial.

Bottom line for consumers: Don't get a piggyback loan without taking a serious look at mortgage insurance, because mortgage insurance is likely to be cheaper in the long run, and it might even cost less in the short run.

According to an analysis by Bankrate, a homeowner with a $180,000 mortgage would save about $351 in taxes per year because of the law. That assumes that the borrower has good credit and is in the 25 percent tax bracket.

How mortgage insurance works
When you buy a house, lenders consider you a riskier borrower if you make a down payment of less than 20 percent. There are two main ways to make you pay for that risk: mortgage insurance and piggyback loans.

Mortgage insurance is the old-school method. You, the borrower, pay for the policy, but the lender is the beneficiary. If you fall behind on the loan payments and the lender has to foreclose, the mortgage insurance policy reimburses the lender for legal costs and lost income. The premiums depend on the size of the loan, the percentage of the down payment, your credit score and the type of mortgage insurance you get (private, from a number of companies, or public, from the Federal Housing Administration, Department of Veterans Affairs or Rural Housing Service).

How piggyback loans work
Piggyback loans are the new-wave method of dealing with a down payment of less than 20 percent. When you use a piggyback, you get two home loans: a primary loan for 80 percent of the house's value and a second mortgage for the rest of the money you need. With a 5 percent down payment, you would get what's called an 80-15-5 mortgage: an 80 percent loan, a 15 percent piggyback and the 5 percent down payment. Getting a piggyback eliminates the need for mortgage insurance.

The piggyback can be either a fixed-rate home equity loan or a variable-rate home equity line of credit. The piggyback has a higher rate than the first mortgage.

The combined payments on a piggyback mortgage are a bit less than the payment on a single loan with monthly mortgage insurance premiums. For years, piggybacks had a big advantage because the mortgage interest on both loans was tax-deductible, while mortgage insurance payments were not. Now that has changed, with caveats.

Important caveats:

Caveat No. 1: The tax deduction applies only to mortgages that are closed in 2007. If you have a loan with mortgage insurance in 2006, you won't be able to deduct the premiums in the 2007 tax year unless you refinance in 2007. Caveat No. 2: There are income limits. You get the full deduction if your adjusted gross income is $100,000 or less. The amount you can deduct phases out rapidly after that, and no mortgage insurance deduction is available if you make more than $110,000. Caveat No. 3: This is a one-year deal, and Congress would have to renew the deduction to make it apply for the 2008 tax year and beyond. Congress probably will extend the deduction, but you can't know for sure. Caveat No. 4: If you take the standard deduction instead of itemizing deductions, the new law makes no difference to you. "You need to have a mortgage of about $130,000 or so to even pay enough interest to hurdle the standard deduction," says Bob Walters, chief economist for Quicken Loans. In practice, he says, this means that the deduction is available to households with incomes between $50,000 and $100,000.

When you put those complications aside, the new law makes it easier to compare loan offers, says Mike Zimmerman, vice president of investor relations for mortgage insurer MGIC. "Now everything's on an equal footing: Mortgage insurance is tax-deductible and piggyback is tax-deductible."

Pay more now or later
Zimmerman says that in many cases, monthly payments on a loan with mortgage insurance will cost more than piggybacks, even after the tax deduction is taken into account. That makes them more expensive in the short run. But private mortgage insurance can be canceled on loans more than two years old if the home's value has appreciated enough for the owner to have more than 20 percent equity. In contrast, you can't cancel a piggyback loan. You pay it until it's paid off.

When deciding between getting a piggyback or mortgage insurance, you have to guess how long you will have the loan. If you think you'll move or refinance within two or three years, it's best to go with the option that provides lower monthly payments. But if it's a fixed-rate loan that you'll keep for five or more years, it's probably going to be cheaper in the long run to get mortgage insurance because you can cancel it.

Ask your lender to compare the total costs for piggyback and mortgage-insured loans over the first one, two, five and 10 years, or try out the calculators available on the Web sites of mortgage insurers Genworth, MGIC or PMI Group.