Big Changes for FHA -Insured Loans

Brief Background

 FHA-insured loans began during the Great Depression.   During this time foreclosure rates skyrocketed and left lenders holding all of the bad debt.. The FHA-insured loan was created to protect lenders from losses should the economy once again tank.  FHA-Insured loans were not created to help low to moderate income borrowers.

Benefits for the Borrower

There are still of couple of benefits that can make an FHA-insured loan attractive to some buyers. FHA-insured loans require that a very detailed and specific inspection be preformed before insuring the home.  In addition, the borrower can buy a home with a lower down payment and sometimes a lower interest rates.

Eligibility Requirements

Conventional lenders are loaning money directly to the borrower.  Whereas, Federal Housing Administration  isn’t directly loaning the money, the administration is insuring the loan based on the borrower’s credit profile.

Recent FHA changes call for a manual review of applicants with credit scores below 620 and debt-to-income ratios of 42 percent or higher. While these conditions don’t automatically disqualify a borrower, it does decrease the number of applicants who qualify.

Statistics show that successful FHA applicants in August of 2013 had an average FICO score of 691, according to FoxBusiness.com. Unsuccessful applicants had an average FICO score of 667.

However,  the lender may have stricter requirements, so it’s always a good idea to review  your credit report before applying for a mortgage.

The Down Payment

Many borrowers love the lower down payment requirements of an FHA- Insured loan – as low as 3.5 percent of the purchase price of the home.  Most conventional lenders require a minimum of 5 percent to 10 per down.

Mortgage Insurance

Private Mortgage Insurance (PMI) is a  policy that homeowners  pay for but derive no benefit from. PMI protects the lender in case the borrower defaults.

FHA-insured loans also mandate mortgage insurance, but it’s known as the Mortgage Insurance Premium (MIP) instead of PMI. As with PMI, FHA at one time allowed borrowers with a 78 percent loan balance to cancel their mortgage insurance premium. As of June of this year, however, that changed.

New FHA borrowers (since June 3, 2013) with low down payments (a starting loan balance of more than 90 percent of the value of the home) must pay for MIP as long as they have the loan. Borrowers with balances lower than 90 percent can choose to stop paying for MIP after 11 years.

In April of this year FHA announced that they would be raising MIP premiums by 10 basis points, making the FHA-insured loan far less attractive than it once was.

Since every home buyer is unique there isn’t a “one fits all” program when it comes to a mortgage.  An FHA-insured loan can still be a good option for many borrowers.

Just a Few of the Reasons Why the Dodd-Frank Act is a Nightmare for Consumers

Sadly, I am afraid this list will grow as we continue to “see whats in the bill”  now that its been passed.

1.  The Volcker rule.  This  is a confusing rule.  Basically the rule would generally ban proprietary trading – transactions in which banks use federally insured deposits and other funds to supplement their earnings. Ratings agency Standard & Poor’s estimated the rule collectively could cost U.S. banks as much as $10 billion annually.   Also, this rule means that banks cannot invest in their own funds.  Therefore, banks will earn less and charge consumers more to make up the difference.   

2.  Consumer Financial Protection Bureau (CFPB) .  CFPB has been very busy bureau with  restructuring the mortgage market; devising restrictions on credit bureaus, education loans, overdraft policies, payday lenders, credit-card plans and prepaid cards; and amassing an a terrifying  database on all manner of consumer spending.   This so called protection bureau will raise fees to consumers,  reduce individual privacy, and make it extremely more difficult for individuals to get credit cards or loans.

3. Financial Stability Oversight Council has been created and charged with designating specific firms as “systemically important financial institutions.”      When Obama signed Dodd-Frank  he pledged that “the American people will never again be asked to foot the bill for Wall Street’s mistakes…. There will be no more tax-funded bailouts — period.”      As of now, the council just proposed that GE Capital,  Prudential Financial, and American International be deemed “systemically important financial institutions”.   In fact, the taxpayer “safety net” for these big firms is bigger than ever.   Can you say bail out?

4.  Community Banks will begin to disappear because they cannot absorb the cost of compliance to  over 400 new rules and mandates.   This will really hurt the economic growth of rural areas since this is where the majority of community banks are located.

5.  More fees.  Dodd–Frank will extract at least $ 27 billion in new fees and assessments on financial firms, according to the Congressional Budget Office. It will require more than 2.2 million annual labor hours to comply with the first 10% of rules issued.  Guess who will ultimately pay those costs?   Yep.  Consumers.

6.  Higher Mortgage Fees and Tougher Lending  Guidelines.  Mortgages and and other loans will likely be costlier. This will affect everyone .  However, the moderate-income borrowers with be hit the hardest.   The  new regulations  have a very narrow criteria for a “qualified” mortgage.

The law gives way too much power to the Federal Government and these agencies are not accountable to anyone-not even to Congress appropriations.   The law actually states  that agencies “may” issue rules or shall issue rules as they “determine are necessary and appropriate.”       That statement alone should give all Americans pause.

All About HOAs and CCRs

So what does HOA stand For?

HOA stands for homeowner association – a nonprofit organization that is funded by all the association’s members and overseen by an elected board of directors.

Many homes in Texas are located in subdivisions that are governed or managed by a homeowners association, or property owners association, as they are referred to in the state statutes. Property owners associations are granted certain powers under Texas state law. Here is the  Texas Property Code   that enumerates that powers granted to HOAs.

The primary purpose of the HOA is  to enforce the policies, procedures, regulations and restrictions agreed to by the members, thereby maintaining property values.  Each homeowner supports the HOA financially by paying  monthly dues and occasional assessments.

If you purchase a home in an HOA  community, you don’t have a choice about whether to become a member. It is required and automatic.   Its very important that prospective buyers read the  HOA documents before  agreeing  to purchase.  If the documents are unavailable for review prior to purchasing a home, then ask to sign an Addendum for Property Located in a Mandatory HOA.

What does CC&R Stand for?
CC&R stands for covenants, conditions and restrictions – the governing documents for the operation of the HOA. These are the rules that homeowners, tenants and guests are obligated to follow.

If you want to paint your home purple or put up a storage shed   check the CC&Rs first.    CC&Rs are the rules for the community and failure to follow them  could result in  a hefty fine for the homeowner.   Believe it or not, unpaid fines can lead to foreclosure proceedings and the loss of the home to the HOA.

Here are just a few items commonly regulated by CC&Rs, according to the authors of “Nolo’s Essential Guide to Buying Your First Home”:

Noise.

Landscaping.

Roofing material.

Fences.

Exterior paint color.

Outdoor play equipment such as swing sets and basketball hoops.

Garages and outbuildings.

Mailboxes.

Window coverings.

Holiday decorations.

Clotheslines.

Garbage and recycling containers.

Pets (size, breed restrictions, etc.).

Parking.

Home businesses.

Every community that has an HOA is different and therefore has a different set of “community standards”.   Read the CC&Rs to make sure that you fully understand what is required.

 

 

6 Simple Tips to Weatherproof Your Home Today!

6 Very Simple Tips to Weatherproof Your Home Today!

Cool weather is upon us and now is a good time to do a few simple steps to weatherproof your home. Not only will weatherproofing help with your comfort you will save money on your energy bills.

1. Caulk, Caulk and then Caulk some more

Where to Use: Start from the bottom of your home and work up. Look for holes in the floor where cables or wires enter the house. Run a bead of caulk along the edge of the foundation, where it meets the siding. Caulk along the subflooring, underneath the baseboard trim, whenever you have your finished flooring removed. Test windows and doors; even newer installations, if caulked with an inferior or improper product, may have caulk that’s grown brittle, shrunk, or become loose. Check around any other openings in the walls, such as pipe outlets, the clothes dryer vent or incoming wires.

2. Fill it With Foam
Expanding foam insulation not only insulates well, it’s a natural air barrier, unlike fiberglass insulation. Sold at most department, hardware or home improvement stores, it’s fairly inexpensive when used for small areas. (For wall insulation, it’s better applied by a professional using industrial machines.) Use low-expansion formulas, sometimes specified as window and door formula, and follow the instructions regarding the application – a little squirt goes a long way. To remove excess, once it has cured as specified, cut it flat with a utility knife. If it gets on fiberglass, on the other hand, wipe it away immediately to prevent an almost impossible removal.

Where to Use: Expanding foam insulation works well for any hole, gap, crack, seam or other opening larger than what is practical to fill with caulk – about 1/4 inch in diameter. Look under the trim surrounding your doors inside; the area between the trim and underneath the doorjambs will often benefit from a foam job. Another practical place to squirt some foam is around your electrical outlets, which are often poorly insulated and prime areas to leak air. Foam may also come in handy underneath crawl spaces and inside basements.

3. Work With Weather Stripping
Regardless of the type of weather stripping you choose, you’ll find it simple to install and effective at stopping drafts. From felt and foam to vinyl or metal, you can find weather stripping at most home improvement or hardware stores. For the best results, match the type of weather stripping to the area you are working on.

Where to Use: Doors and windows are prime candidates for weather stripping – just make sure you can close them easily (although snugly) with the weather stripping in place. Don’t forget your garage, either. Weather stripping windows, entry doors and garage doors can have a profound affect on your home.

4. Seal Your Attic
To fix it, purchase an attic stair cover at a home improvement store or make one yourself.

5. Treat Your Windows
Even the newest windows transfer more heat and cold than insulated exterior walls. Older windows, often single-paned and possibly glazed in place, are even worse. Of course, a house without windows isn’t the solution, and upgrading windows is costly.

The Solution: During the winter, storm windows add an extra barrier between the cold outside and the warm within your home. In the summer, take down your storm windows and replace them with screens. This works well for exterior doors as well. Heavy drapes – especially insulated drapes – also help block both hot and cold weather. In the winter you can actually help warm your home by opening curtains on south-facing windows. Bonus: If you have pets, they will probably love basking in the sun.

6. Deal With Your Ducts
As long as the air flows properly, most people don’t spend much time thinking about their ductwork. Leaky or poorly insulated ducts, however, can cost you a lot of money – not to mention the time spent battling to keep your home at the right temperature. Wrap ducts with duct insulation, which is readily available at home improvement and hardware stores.