No I’m not going to get all philosophical on you but I was thinking about the changes in the Real Estate and Lending marketplace while I was listening to that great, old song by The Band, “Life is a carnival, believe it or not, Life is a carnival, two bits a shot”. Now I tend to believe that life is a little more structured then that. I don’t think that it is just a random set of events with no order and no control but sometimes when you look at the events of the past few years in the Real Estate game, It makes you wonder. (Disclaimer: Ultimately, I believe that God is in control but this is more about how we perceive day to day events in our lives).

The bottom line is that the market is still taking a hit with foreclosures, short sales, and much tighter underwriting guidelines. So if you bought a house a few years ago, that property value is probably down. If you want to buy a home now, there is a “chance” that you will not qualify for a loan even though two years ago you probably would have been fine, and that says nothing about trying to qualify if you are self employed…talk about brain damage. In that sense, life is a gamble. There may be a very few experts that have the knowledge to see the long term changes in a market before it happens, but most of us are either beneficiaries or victims of those changes.

So where does that leave us. Well right now it is tougher to qualify for a loan and buy a home, but it is an excellent time to buy. Prices in Denver are beginning to settle down and even go up in places. Interest Rates on loans are lower then they have been in probably 50 years. In a 5 year period you can save as much as $8,000 (Does that figure look familiar? Tax Credit maybe?) in the savings that you will get with the rates in the low 4% range. There are still safe Down Payment assistance programs available.

So is life a Carnival? Well, it can be. Is it random? Not really, but there are random parts to it. I still believe that you can’t control what life throws at you but you can control how you react to it. Carnivals are supposed to be fun and even though you take a risk (”Two Bits A Shot”), if you’re smart you can win. If you lose, try to keep it to a minimum. You take a chance when you buy a home, but over time, your risk is minimized. There are very few homes that go down in value and stay there forever.

If you want to see what you qualify for, contact me. By the way, if a lender tries to charge you an up front fee, like an application fee, walk away. That should not cost you a dime.

Posted by Mark Afman under Home & Mortgage & Real Estate | No Comments »

The last message I sent out was all about my view of what it means to be successful and who is ultimately responsible. This one gets back to the the practical things that you need to know if you are looking to buy a home.

Posted by Mark Afman under Home & Mortgage & Mortgage Blog & Real Estate | No Comments »

Mortgage Insurance…It strikes fear in the heart of most home buyers, or at the very least it makes them angry. I have yet to have anyone say to me that they are happy that they have to pay a chunk of extra money in the house payment just because they don’t have a big down payment. Well, I can’t say that I blame them. Nobody wants to pay anything extra…especially when they really don’t understand what it does. “So Mark” they say, “You mean to tell me that I have to pay this insurance premium every month as part of my house payment to protect the LENDER in case I stop making the house payment?” Well…Yea. Doesn’t seem fair but it really is benficial.

It used to be that banks would only lend to people with a down payment of 20% or more of the purchase price of the house. As you can imagine that left out a pretty big percentage of the population. So the government came up with an idea. If the lenders would loan more then 80% of the value of a home, they would be protected from the additional risk by taking out an insurance policy that would protect them in case the loan went bad. The down side is that the premium on this insurance had to be paid by the home buyer. At first this insurance was provided by the federal government and was done through the Federal Housing Administration and is the same basic package today through FHA loans.

Later on when Fannie and Freddie came into being and were separate from FHA, they had to have some way of protecting the lenders from the possible loss of loans that were not paid back. They went to private financial companies to get the same thing and Private Mortgage Insurance (PMI) was born. PMI is provided by such companies as RMIC, AIG, and MGIC. These companies have suffered with the whole “mortgage meltdown”. You may remember that AIG was the subject of quite a bit of bad press when they needed to be bailed out but then paid out some big bonuses to some of their employees.

A few details to be aware of is that FHA MI and Conventional PMI do basically the same thing but there are a few differences. FHA MI is paid by the borrower in 2 different ways. Part of it is paid as a one time ”up front” mortgage insurance premium that is (at least right now) equal to 2.25% of the loan amount. This one time premium is allowed to be rolled into the loan. The rest of it is paid in the monthly MI premium that is equal to .55% of the loan per year and that is divided by 12. PMI does not have any “up front”portion so all of it is paid in the monthly premium. The PMI amount varies based on the risk. The more you put down and the better your credit is, the lower your PMI will be. The other difference is that FHA will charge their MI for a minimum of 5 years no matter how much money is put down. So even if someone put 20% down but needed an FHA loan, they would pay that MI for the 1st 5 years. PMI is only charged if the borrower does not have 20% or more to put down.

Another thing to be aware of with PMI companies is that since they went through the troubles of the last couple of years, most of them require that they underwrite the loan in addition to the lenders underwriting. They want to make sure that the loan is a good loan so they don’t have to pay out any insurance claims. The bottom line is that without MI or PMI, most people could not get a loan so it seems evil but it’s kind of the price you have to pay for not being able to save up a big down payment.

If you have any questions on this please feel free to contact me

Posted by Mark Afman under Home & Mortgage & Mortgage Blog & Mortgage Information | No Comments »

My wife was watching TLC this weekend and she asked if construction loans were really that tough to do. It turns out that there was one of those shows on that feature first time buyers and their trails and tribulations on finding a home. This particular episode featured a young couple that wanted to buy a home that was in the middle of a renovation but it had not been completed by the previous owner before they lost it to foreclosure. They were asking the Loan Officer about construction loans and the teaser segment said that construction loans were impossible to get. Continue Reading »