by Alden Smith
Although many people can afford a mortgage payment and associated costs to owning their own home, the thought of coming up with a substantial down payment often stops them from taking the plunge. Charity organizations and federal institutions are available to these buyers to assist with this problem. We will discuss what can be done to assist the home buyer in need of financial assistance in this article.
What Are Assistance Programs?
Down payment assistance programs, both non- profit and federally run, help interested home buyers with procuring down payment on a home. The seller of the home assists the buyer by contributing a portion of sale proceeds to the home buyer at the time of closing. Because federal and state laws dictate that the seller cannot give the funds directly to the buyer, the assistance programs provide a work around so that the sale stays within federal guidelines. The gift amount is determined by the type of
loan that is being applied for.
How Does This Work?
This is what happens - the seller enrolls the home in a down payment assistance program. They will contribute the amount the buyer needs for closing. A fee applies here. When buyer and seller go to the closing table, the assistance program that the seller has enrolled in then wires the needed funds to the selling agent. By law, the seller can have no part in the transfer of any funds.
What Agencies Can Help?
The best source of funding comes through the Federal Housing Authority (
FHA). The FHA is a branch of the Department of Housing and Urban Development (HUD) which was created in 1965. The prime responsibility of the FHA is to administer government home loan programs. Because the loan is insured by the FHA, the lender is protected in case of default.
The FHA also looks at debt to income ratios differently. The standard in the lending industry is a debt to income ratio of 28/36%, but the FHA has a standard of 29/41%. This offers the buyer with less than perfect credit an advantage.
The FHA also works with people on however many loans they wish to pursue. This is not just a one shot deal for consumers. A real disadvantage of an FHA loan is that there are limitations on the size of loan they will administer. This is not a disadvantage to people who are pursuing an FHA loan. People that require this type of assistance are not looking to buy a home costing $250,000.00. FHA guidelines are readily available by doing a search on the internet.
What Are Charitable Down Payment Assistance Programs?
There are other organizations that administer down payment assistance programs that are not run by the federal government. The most popular today are AmeriDream, Inc, The Nehemiah Program, and Partners in Charity. Whenever dealing with any charity organization that handles assistance programs, insure that they are members of the Home Gift Providers Association (HGPA). This watchdog organization has a list of ethics and best practice guidelines for down payment assistance programs.
If you are dealing with these charitable organizations, always ask questions as to their involvement in the community. Do they partnership with local businesses and organizations? Will they provide you with a current financial stability report? Ask them if they allow borrowers to use their contribution for paying off such things as bad debt or to settle judgments against the borrower. This is frowned upon by the HGPA. Try to find out if the organization gives kickbacks to local realtors or mortgage lenders. If you find that they do, then know that these institutions are less than trustworthy, and you probably shouldn't deal with them.
Be aware that HUD doesn't approve gift programs, but leaves it up to the mortgage lender to insure that the organization you are dealing with follows HUD guidelines as listed in HUD Handbook 4155.1 REV-4, CHG-1 Paragraph 2-10(C).
Other Issues
Be aware that the seller may inflate the selling price of the home you are interested in to recoup their fees that may be required to enroll their home with an organization. Check the prices of homes comparable to the home you wish to buy in the locale to see if there is a significant difference in the price of the home.
Although many people are discouraged by the requirements for buying a home, there are organizations that are available to help them through the process. Doing your own due diligence will go a long way to help you determine not only whether you are capable of paying a
mortgage, but what costs and fees are necessary. Take advantage of the resources listed here to help you in buying your home.
During the past few years we have been talking about toxic mortgages -- and the need to avoid them. Without fail, each time the subject has arisen lenders would write to say we were wrong, that option
ARMs and interest-only loans were simply "affordability products" with no financial sting. As to prepayment penalties and stated-income loan applications, they were -- we were repeatedly told -- minor concerns and not much of an issue.
We were needlessly worried, said lenders, because strong credit scores assured that borrowers could easily handle financing costs "if" monthly payments rose. But toxic loans were engineered to guarantee higher costs once start periods ended. There was no "if."
The credit score argument never made sense because good credit was being required before borrowers faced higher monthly costs. It's easy for some households to be well-qualified with a $1,200 monthly payment -- but underwater when that same bill rises to $1,800.
The other argument made by lenders has been that they were social do-
gooders, moral folks offering cheap loans so more families could own housing.
Now we know that the do-
gooder argument doesn't hold water. Figures from the latest Census Bureau survey show that
homeownership in the last quarter of 2007 was down to the lowest level seen since 2002. You remember 2002 -- that was before toxic loans were widely marketed.
The reason millions of people are facing foreclosure today is very simple: A lot of money was made originating, selling and packaging loans with terms that were unfair and unconscionable from day one. Like tainted food, defective cars or toys covered with lead, such flawed financial products should be recalled at no cost to the consumer. After all, isn't that the moral thing to do?
borrowed from our
Friends at
realtytimes.com
NEW YORK (CNNMoney.com) -- It's going to cost some borrowers even more to get a mortgage beginning in 2009.
In a recent agreement with New York State Attorney General Andrew Cuomo, Fannie Mae (
FNM) and Freddie Mac (
FRE,
Fortune 500) pledged that they will only buy mortgages from lenders that use independent appraisers. Since these two companies account for more than 70% of all mortgage loans, virtually all lenders will comply with the guidelines.
Inflated home appraisals were a big part of what helped fuel the current housing bubble. For years, appraisers were pressured by mortgage originators, real estate agents, home sellers and borrowers to over-value the homes they appraised.
"Cuomo looked at the pressure appraisers were under; they were never allowed to act independently during the housing boom," said Jonathan Miller, president of New York appraisal firm, Miller Samuels. "Good appraisers had to find new careers or work that wasn't dependent on the lending industry."
The rising tide of inflated appraisals lifted all boats, boosting fees for agents and brokers alike, and ensuring the transaction would be completed, regardless of the cost, netting the seller a handsome profit and the buyer a dream home. After all, a bidding war might push a home's price up, but a lender won't agree to issue a mortgage based on a sale price that isn't supported by a home's appraised value.
And so, all parties involved often pressured appraisers to go high - called "hitting the number." Appraisers who didn't go along often found it difficult to get more work.
Cuomo's plan should help curtail the bullying that often pumped prices up.
But while eliminating mortgage fraud will be good for the real estate market in the long haul, this reform will come at a cost to consumers.
Right now, mortgage brokers need just one appraisal for each deal. The broker can then include it with applications to as many lenders as they'd like.
But beginning in 2009, brokers won't be permitted to do that. A different appraisal will have to be ordered by each lender that a borrower applies to. That cost is then passed along to the applicant.
"The borrower would be responsible for an appraisal fee (often $300 to $400) for each loan submitted," said Roy DeLoach, executive vice-president of the National Association of Mortgage Brokers.
Mortgage brokers could avoid multiple appraisal fees by applying to just one lender at a time; if the first lender approves the loan, then the borrower won't need to pay for any more appraisals.
But submitting applications one at a time can take a lot of time, and some consumers could lose the lower interest rates they had locked in for 30 days.
So while previously the appraisal process might cost buyers about $400, it could end up costing anyone who needs to shop around for a deal - perhaps half of all buyers - as much as $1,000-$2,000.
Mortgage brokers also fear the Cuomo pact will drive borrowers to deal directly with lenders, putting some brokers out of business. They say that will eventually drive up borrowing costs by shrinking competition.
But, even if the Cuomo agreement does come with a cost, says Jonathan Miller, "false appraisals cost home owners far more than any transactional-cost increases would."
And over-appraising has become routine, according to Miller. "People who were morally flexible would play ball," he said. "Before the housing boom, I estimate that 80% of the appraisers were competent and ethical. Now, the reverse is true." Many appraisers regularly add a cushion to every job.
"These appraisers are form-fillers," said Miller. "They're called 10-percenters because their evaluations tend to be 10% above actual values so the applications are accepted."
And as all the over-appraised homes became part of the record, that pushed up pricing trends further, since appraisers use comparable homes as the basis for new appraisals.
Thomas Inserra, an appraiser and CEO of Zaio, which is creating a national database of home evaluations, and who has testified about appraisal abuse before Congress, has what he considers the most comprehensive and elegant solution of all.
He thinks appraisals should be handled like credit reports, with all home values stored in a giant database that can't be altered by any of the parties in a transaction. This, he said, would ensure accuracy and transparency.
House values would only change only as market conditions dictated or with physical alterations of properties. And, it would be fast.
"By storing compliant appraisals in a database like a credit bureau stores credit scores, Zaio is now delivering appraisals to lenders in seconds rather than the normal five to seven days," said Inserra.
Borrowed from our friends at CNNmoney.com
Over 900,000 borrowers are losing their homes, up 71% from a year ago, and a record number of home owners are behind on payments.
More home owners than ever are losing the battle to make their monthly mortgage payments.
Over 900,000 households are in the foreclosure process, up 71% from a year ago, according to a survey by the Mortgage Bankers Association. That figure represents 2.04% of all mortgages, the highest rate in the report's quarterly, 36-year history.
Another 381,000 households, or 0.83% of borrowers, saw the foreclosure process started during the quarter, which was also a record.
Additionally, the number of mortgage borrowers who were over 30 days late on a payment in the last three months of 2007 is at its highest rate since 1985.
"Boy, that was ugly," said Jared Bernstein, an Economic Policy Institute economist of the data.
"It's another reminder that anyone who thought we had hit bottom was wrong. This was a huge bubble, and when a bubble of this magnitude breaks, it creates a huge mess," he said." It could take a lot longer for the correction to work through the system."
Housing rescue: What you need to knowOne reason it may take so long is that there seems to be no end in sight for falling home prices.
"Declining prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state," said Doug Duncan, MBA's Chief Economist said in a prepared statement.
The foreclosure rates for prime and subprime adjustable rate mortgages both more than doubled compared with a year ago, from 0.41% for prime ARMs to 1.06% and from 2.70% for subprime ARMs to 5.29%.
But it was subprime ARMs that contributed most heavily to the nation's soaring foreclosure rates. Many of these loans come with low introductory rates that reset higher, often to unaffordable levels, in two or three years. Although they represent only 7% of all outstanding mortgage loans, they accounted for 42% of foreclosure starts during the quarter.
Delinquencies stood at 5.82% of outstanding mortgages, up from 5.59% during the three months ended September 30, 2007, according to the MBA. In the last quarter of 2006, the rate was 4.95%.
Home price plunge accelerates"In states like Ohio and Michigan, declines in the demand for homes due to job losses and out-migration have left those looking to sell their homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face," said Duncan.
"In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through."
California and Florida are the states hardest hit by foreclosures. They accounted for 30% of all foreclosure starts in the United States last quarter, despite representing only 21% of the mortgage market.
Florida's foreclosure start rate more than tripled during the last three months of the year compared with a year ago, and they more than doubled in California.
Both states still have a sizable over-supply of inventory, according to Duncan, due to over-building during the speculative boom that lasted through mid-2006. That will continue to depress home prices and add to mortgage delinquencies in those states.
"We expect to see home price declines to last there through the end of 2008," he said, "after the rest of the country is in recovery."
As prices plummet -- already some California and Florida areas have seen price drops of 25% or more, according to Duncan -- defaults will soar.
And falling prices and growing foreclosures create a vicious cycle; the more prices fall the less likely it is that borrowers can use home equity to refinance into more affordable loans, which leads to more defaults. And as foreclosures rise housing inventory increases, further depressing prices.
At the same time, these trends have lead to a contraction the construction industry, hurting overall U.S. economic activity and increasing the chances that the economy will fall into recession.
