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The real estate downturn of the mid-2000s is mostly over and the market is heating up, with prices rising in all over the U.S. In Wisconsin, the real estate market might be even healthier than in other locales, with new and existing home prices expected to rise 2.4 percent by early 2016. It might just be the perfect time to buy, but before you make any offers, you need to do a little planning to make sure you can pay out over the long run, especially if it's your first home.

Get Your Financial Ducks in a Row

Do you have good credit? Do you know what good credit is or the factors that affect your credit? Have you had late payments, bankruptcies, judgments or other liens? If the answer is yes, the first step is to work on your credit score and report. Up until just recently, access to your credit score and full report was granted after putting down credit card info for a "free trial." that you would have to cancel right away to avoid a costly fee. Now, you can access your score and report for free, so there's no excuse for not knowing what's happening with your finances. Your FICO scores are ordered separately, usually for a nominal fee. Check it for discrepancies or old information. Much of the time you can contact the lender directly to resolve these issues. Or, contact the bureau and use their dispute resolution process. Most mortgage loan programs require a 640 score or higher, so fixing errors or having old information removed can make a big difference.

Do You Have Funds?

Do you have money for a down payment or closing costs? If not, how long will it take you to save? Start now. Make a commitment to stash funds away each month to help you meet your goal. Some loan programs are still available for 0% down but watch out for those; if the market should falter again you don’t want to owe more on the home than it’s worth. It also goes without saying that you want to refrain from big purchases that require credit, such as buying a new car, until after the home purchase process is over.

Are You Homeowner Material?

Owning a home is touted as a big factor in achieving the American dream, but it's not for everyone. Ask yourself:

Am I prepared for expenses like home repairs and landscape maintenance? Am I at risk for job relocation? Am I able to stay in one place for three to five years?

Talk to a Lender First, Not a Realtor

Resist the urge to call your realtor first. Instead, speak with a lender or two to find the best program. There are many loan products and even more lending institutions so it's worth shopping around for the lowest rate. A good lender will also advise you on the best ways to protect your credit while you a preparing to buy a house, which might include ID monitoring and credit report monitoring to ensure that someone else isn't using your good credit or your identity while you working on purchasing your home.

Use a mortgage worksheet to keep track of the information you receive from various lenders. It can be a dizzying amount of numbers and differences so keeping them in one place is important. When you are within 60 days of purchasing, your lender will issue a pre-approval letter for the amount you qualify for. Now you can call your Realtor and look for your dream home.

Assuming an Existing FHA Loan

Most mortgages have a requirement that the loan must be paid in full when the property is sold. However, FHA offers a different option to the seller and buyer. It is possible for the buyer to take over the existing FHA mortgage from the current property owner. This is a very enticing offer for someone that has a mortgage with a great interest rate. Here are the guidelines for an assumable FHA mortgage.

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Review Existing Loan

The first thing you should do as a potential buyer is review the existing loan documents. Any loan that originated prior to December 1 in 1986 is allowed to go through a “simple assumption” procedure. This means the buyer does not have to qualify for the FHA mortgage. For loans that were originated on after the December date, the buyer will have to qualify for the loan just like any new borrower.

Negotiate a Price with the Seller

Most sellers would like to receive a large part of the equity they paid in to the mortgage over the years since they originated the loan. The price you can negotiate is really dependent on your ability to deal and the seller’s motivation for getting rid of the home. One thing that must be clear; the buyout amount given from buyer to seller cannot be financed in to the existing FHA mortgage. This is money that needs to be paid either in cash or with a loan separate from the mortgage.

It may be possible to convince the seller to finance the buyout amount. This would mean that you have two loans to repay in order to purchase the home.

Talk to a Mortgage Lender

Since you will likely have to qualify for an FHA mortgage loan, it is advisable to talk to a lender experienced with FHA loans. The lender can review your credit file, determine your monthly income per FHA guidelines and find out if you qualify for the loan.

Determine Current Loan Status

You need to find out if the current property owner is up to date on their mortgage payments. If there are any late payments, those payments are transferred to the new buyer. This can be rectified by either paying the amount necessary to get current or requesting a modification of the loan.

Inquire About Down Payment

Since FHA asks for a down payment equal to 3.5% of the price, this rule will apply to someone assuming the loan. In this case, the 3.5% is based on the existing loan balance.

If you are approved for the loan, you may proceed with the closing process. You should ask the lender to contact a local title agency to research the title to ensure there are no liens on the property other than the FHA mortgage. Additional liens will have to be paid in order to transfer the deed in to your name as owner.

Tips for Home Sellers to Minimize Their Risk in Lease-to-Own Transactions

The economic downturn in the housing market over the past 5 years has driven up the number of sellers willing to consider leasing out their homes with an option to sell.  This can be a wise move in the right situation but sellers need to make sure they take steps to minimize their risk in these transactions.

Demand an Option Fee Up Front

For the duration of the lease the seller of the home cannot market the home to would-be buyers.  This time period could be as short as one year or as long as three years depending on the renter’s financial condition.  Sellers should demand an option fee up front.  This fee can be applied to the purchase if the renter indeed manages to arrange financing at the end of the lease.  However, if the renter decides to pursue another home, they forfeit the fee.  This fee is usually in the range of 3% to 5% of the agreed purchase price in order to ensure the buyer is committed to the purchase.

Protect Against Appreciation

Once again, going back to the fact that the seller is not able to market the home while it is under a lease contract, it is possible the home could appreciate greatly in value.  It is wise for most sellers to add at least 5% to the current market price of the home when writing out the lease-to-own contract to help the seller reduce their possible loss.  At the same time, the buyer is getting a price on the home, in writing, for a future date.  This is a big plus for the buyer since they now know the price cannot rise.

Work Out a Contract for Maintenance and Repairs

In order to give the buyers the sense of actually owning the home, sellers can ask buyers to sign a contract that spells out responsibilities for maintenance and repairs.  Obviously, most renters will not be inclined to pay for major repairs such as a roof replacement or installing a new heating and air conditioning system.  But the seller may want to enforce a policy that lawn maintenance, modest repairs for plumbing and electrical needs, and other such items are the responsibility of the buyer.  This can help the buyer budget for future repairs and also help them decide if they are financially ready to purchase a home.

Carrying Additional Insurance

While the buyer/renter is in the home as a tenant sellers will require proof of renters insurance.  However, it is a good idea to carry an additional policy on their home beyond their current needs.  Catastrophic events such as tornadoes, fires and floods happen when we least expect them.  Nothing makes a tragedy worse than realizing there was not sufficient insurance coverage to handle the damage.

Many hopeful borrowers are in need of something beyond a traditional mortgage.  The lease-to-own model is a good way for sellers and buyers to reach their intended goals.  However, sellers need to be especially careful in these deals to make sure their interests are protected beyond merely the sale of the home.

Original Post - Rent-to-Own Minimizing Risks

Understanding the No Money down USDA Mortgage

Buying a home in Wisconsin with no down payment is still a reality thanks to the USDA program.  The Rural Development section of the United States Department of Agriculture (USDA) has made great strides in the past two years to educate loan officers and potential borrowers of the benefits of this program.  The mortgage offered by the USDA is quite different from other programs and is a great way for people to purchase a home without a costly down payment.

Mortgage Insurance

Unlike conventional loans and FHA loans, the USDA loan does not require any mortgage insurance.  This means that every dollar of every payment is going towards the principal, the interest or the escrow for the home.

Closing Costs Paid by Seller

A conventional loan allows the seller to pay closing costs up to 3% of the purchase price.  Similarly, FHA will allow the seller to pay closing costs up to 6% of the purchase price.  However, USDA has no limit on the amount that can be paid by the seller.  This means it is possible to find a house and purchase it without paying a down payment or any closing costs.

Property Location

In order to be considered for the USDA loan a home must be located in an area designated as rural by the USDA.  However, would it surprise you to learn that of the 72 counties listed in Wisconsin, 50 of those counties are considered rural?  And the remaining 22 counties have sections that are considered rural. This means that there are numerous homes that could be eligible for this type of loan.

Income Limits

There are also some limits on the person’s income.  The USDA bases the limits on the total number of people that will occupy a home.  For example, a family made up of a mom, dad, and three children under the age of 18 will be allowed more income than just a married couple.  A Wisconsin loan officer can look up the limits for each county and let you know if you meet the guidelines.

Loan Limits

The maximum amount allowed for a USDA loan is different for each county in Wisconsin.  However, the limits are very liberal.  Some counties, such as Ozaukee and Dane, will allow qualifying borrowers to get a loan up to $230,000.

Not For Select Buyers

Some people are under the impression that the USDA loan is only for Wisconsin borrowers looking for their first home.  However, nothing could be further from the truth.  People buying their first home or their fifth home can use the USDA loan.  The only stipulation is that the property must be the borrower’s primary residence.

It has been mentioned in the news a lot in the past three years that mortgage rates are at an all-time low.  When rates are so low it is only a matter of time before they start to rise.  Take the opportunity to talk to a Wisconsin loan officer and find out if you can get a home using the USDA loan.

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a USDA lender directly to learn more about its mortgage products and your eligibility for such products.

Original Post - Understanding the No Money Down USDA Mortgage

Wisconsin Short Sales
Madison Wisconsin Short Sale Realtor®
Janesville Wisconsin Short Sale Realtor®
Beloit Wisconsin Short Sale Realtor®

Although it is hard these days to still find a true no money down mortgage loan, there are a few programs that come pretty darn close. Take the HUD|FHA $100 sales incentive program as an example. The loan officers over at Inlanta Mortgage have brought this newer mortgage program to my attention. I have included some excerpts from their HUD FHA $100 Down Mortgage Program blog post below.




 

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Just like every bank out there, HUD has also seen a rash of foreclosures over the last few years. When someone defaults on a FHA mortgage, HUD may end up owning that property since they insured the borrower against default. HUD is not in the business of owning or renting properties so they came up with a unique sales incentive in order to sell these homes.

HUD has offered a program to allow for a qualifying borrower to purchase a single family home with only a $100 down payment requirement. The borrower can finance the cost of the home + the 1% UFMIP as long as the value is supported by an appraisal. The home buyer may increase the offer and ask for a seller credit to cover closing costs and then would only be required to bring $100 to close. This is a great deal if you can find a property that is eligible. We have a link we’ll post below to get you to HUD’s website where these eligible homes can be found in your area.http://hudhomestore.com/HudHome/Index.aspx

The requirements for this program:
Home must be an approved HUD home
Single Family Residence
Owner Occupied
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I'd be happy to help you find the perfect HUD home for you! Don't forget about our home buyer discounts available. Call me at 608-921-8536.