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First-Time Homebuyers Discounts through FHA

People in the market for their first home can take advantage of a new offer from FHA. This new initiative aims to provide more information to buyers though classroom education and will reward them with a reduction in the premiums paid towards mortgage insurance.

HAWK to the Rescue

The name of the new initiative is called Homeowners Armed with Knowledge (HAWK). The borrowers are asked to complete a series of classes prior to buying the home as well as a few courses scheduled after the home has been purchased. At the time of this writing the classes are broken down in the following ways

* 1st class to be completed before the buyer completes a purchase contract

* 2nd class will be completed after a contract is signed and before the loan is finalized

* 3rd class will be completed within 12 months after the loan is finalized

Goals of the Program

Simply put, the HAWK initiative is hoping that people buying their first home will have a better understanding of the overall process thanks to the counseling and will be in a better position to make wise financial decisions in the future not only in regards to their housing but also to their other needs.

Monetary Benefit

Once the customer has completed the necessary classes their upfront mortgage insurance premium will be reduced along with the monthly premium that is paid as part of the mortgage payments. In addition, if the customer has no delinquent mortgage payments within the first 2 years of the loan the monthly premium will be reduced again.

Some Limits and Expiration Dates

Since this is a new program with no history to review the FHA is rolling this out with limits. The program is currently scheduled to only last for 4 years. In addition, not all FHA loans are going to be accepted under this program. At this time there is no news about how many loans will be allowed to use HAWK but FHA has stated that there will be a maximum number each year.

Class Time Requirement

For the class completed before the contract signing the prospective buyers will need to finish at least 6 hours of counseling and education.

The class that is conducted after the contract signing is a one hour class as well as the class that comes after the loan is closed.

Each class will issue a certificate to the students indicating that the course has been successfully completed. These certificates will be necessary in order to get the reduction in mortgage insurance premium.

In general, this is a great program that FHA is offering. It provides critical information to potential home buyers in order to better prepare them for a prosperous future and it rewards them by reducing the amount paid on their mortgage.

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I received an email from CRES insurance advertising their E&O coverage http://www.cresinsurance.com/solutions/e-o/, the quote came out to half of what I am paying now. This seems to be too good to be true, since I have really shopped around before I found the insurance that I have now, and I thought it had very decent rate.

Have any of you heard of this company CRES? Have you ever dealt with them? Are they for real? Thank you for all your help in advance.

Should You Compare Quotes from Various Agents for Home Insurance?

Don’t be fooled by funny commercials and catchy slogans; insurance is quite complicated.  Varying levels of coverage, locations and other factors make insurance policies very different from one provider to the next.  That is why it is so important to compare various quotes from different insurance agents.

Wild Changes for Multiple Locations

Check out these findings from Bankrate for multiple quotes for various locations

Bankrate used the websites of popular insurance providers to get quotes for various cities.  The parameters for the quotes were as follows:

• Single family home
• Full replacement policy
• Value of home $250,000
• Liability policy of $300,000
• A deductible of $500
• Medical coverage of $1,000 for each person

As you can see from the chart in Racine, WI the 3 quotes for the same property varied by 37%.  For higher priced areas such as Chicago, IL the quotes differed by as much as 121%.

What Causes the Differences?

Every year the insurance department from each state will approve a set of rates which is based upon the actual losses in the state from prior years as well as anticipated claims for the upcoming year.  Each insurance company uses a team of actuaries to look at historical data to come up with a reasonable expectation of insurance claims for the upcoming year and compares that with the company’s financial ability to pay the claims.

Each insurance company has their own standards and guidelines for assigning rates.  One company may place a higher weight on the costs to build in a particular neighborhood while a second insurance company would place more emphasis on the rate of crime and possibility for a natural disaster.  This is one reason why it is so important to thoroughly investigate a new neighborhood and understand the area’s history before buying a home.

Rash of Disasters Take Their Toll

The disasters from that past few years all over the country have resulted in higher insurance in multiple areas.  Tornadoes in Missouri, flooding in Tennessee and hurricanes along the northeast have left a wake of millions of dollars of damaged buildings, automobiles and personal belongings.

All of these events, and many similar disasters, have driven up the cost of homeowner’s insurance. Along with these natural problems there is also the issue of higher costs to build a home after it is totaled and the decreased investment returns that insurance companies have experienced with the sluggish economy.

Before getting a policy with an insurance agent make sure all of your bases are covered.  You will obviously need a policy that will take care of your home and your mortgage loan if the property is completely destroyed.  You also need to take an inventory of your belongings to make sure they are protected in the case of burglary, fire or other event.  Some people have collections of valuable items such as art, jewelry and firearms.  Losing these items can be disastrous, especially if the insurance policy is not adequate for the loss.

Verona, Wisconsin Homes for Sale

The real estate industry is just like any other major industry segment. The people that work within the industry use specific phrases and words that are not too common in other types of work. Understanding some of the common jargon will help first time buyers feel a little more comfortable with the process.

Mortgage – This is a loan that provides the financing for the purchase of a home. Buyers will sign a promissory note that explains the terms of the loan. The interest rate, amount borrowed and number of payments required to repay the debt are all laid out in this document. A mortgage is different from a car loan or a credit card since a piece of property is used as collateral for the loan.

Appraisal – This is a report that explains the home's value. A professional appraiser will inspect the home and then compare it to other similar homes in the nearby area. Based on common criteria such as location, square footage, age and amenities the appraiser assigns a market value to the property. This is slightly different from a home inspection. A home inspection is designed to point out any areas in need of repair or replacement. An appraisal simply decides how much a home is worth as it currently stands.

Contingency – These are requirements spelled out in the real estate contract that must be completed or met in order for the sale to go through.

For instance, most contracts will have a contingency concerning the appraisal. If the home is not worth the sales price then the buyer may be able to get out of the contract.

Escrow – This refers to the funds, assets or securities being held by a third party separate from the buyer and seller. The buyer will place funds in escrow as proof that they wish to go forward with the sale. Once the seller has met the conditions of the contract the funds will be released.

Disclosures – The buyer must be informed of various details by the seller prior to the purchase. Each area will have slightly different requirements for the disclosures in their location. An example would be the location of a home in a known flood zone. This would affect the homeowner's insurance and could affect the buyer's ability to pay.

Closing – This is the last phase of the property purchase. All parties involved in the transaction will meet at either an attorney's office or an escrow agent's office (title company). The seller, buyer, and any attorney will typically attend the closing. At the closing the seller will receive funds for the transaction and the buyer will sign the necessary documents for the loan. The deed will be transferred from seller to buyer. Finally, the closing costs will be paid based on the agreed terms in the contract.

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