Be aware of this when applying for a mortgage

With all the extra housing inventory available, it’s a great time for someone looking to invest in real estate to buy a home.  We all know, though, that it’s becoming tougher to obtain a mortgage these days.  Mortgage brokers and banks want solid credit scores and higher down payments.  So if you are making an application for a mortgage, here’s a list of what you want to be aware of during this typical 45-day period to make sure the mortgage goes through.

1. Now is not the time to make any big purchases.  That includes high-ticket items such as cars, appliances, TVs, and furniture for your new home.  A lot of people don’t realize that when you make your purchase, you’re creating more debt for yourself (if you’re charging the item rather than paying cash) and becoming a bigger liability for the bank.  So it’s been known that the mortgage can be pulled in this instance.  Wait until after you sign the closing papers to make the next purchase.

2. It’s not a good time to switch jobs.  When applying for a loan, the lender looks to make sure you have job stability and knows what type of salary and/or bonuses and commissions you receive.  If you switch jobs in the midst of the application, they’re going to have a hard time verifying salary information, which could affect your loan.  Again, wait until after you sign the closing papers to make any career moves.

3. There could be multiple credit checks.  The lender obviously checks your credit at the loan application before they decide if they can pre-approve you.  However, now lenders are often going back to check credit scores again right before closing.  So know that you want to continue making all your payments.  Avoid applying for a new credit card or making a big purchase.  Any upset to your score could affect your mortgage.

4. Have money ready for closing costs.  Don’t take every last penny you have to use toward a down payment.  Closing costs could cost you an additional 3% out of pocket.  You’ll want to check in with your lender within a few days of closing to get a rough estimate of the amount you’ll need to bring to closing.  It’ll most likely have to be in the form of a cashier’s check made out to yourself.  Your lender can give you the exact information.

These tips will help keep the mortgage application going without any hiccups.  Of course, if you have questions or problems along the way, be sure to contact your lender.  They will be able to guide you through the process and give you other tips to make sure there are no problems prior to closing.

I can be reached via my Web site.

Fannie Mae raises fees

In an interesting move, Fannie Mae announced they are raising their fees this spring.  What’s even more interesting is that it will affect buyers who have higher credit scores.  This will make mortgages more expensive for a lot of people.

These fees are called “add-on” fees.  They’re basing the cost on your credit score and the amount you’re going to put down for a down payment.  And the cost could be anywhere from a quarter of a percentage of the loan amount to 2.75%.

An example of how this works from this Washington Post article: If you want to buy a $300,000 home and have a great credit score of over 800 with just under 25% down, you’ll be charged .25% or $750.  Previously your cost would have been $0.  Now if you have a credit score of 679 and a down payment of less than 20%, you’ll be charged 2.75% or $8,250.  And it matters what you purchase.  A condo will cost you more than a single-family residence.  You can choose to pay these fees up front or tack them on to your mortgage.  Do know that by adding it to the cost of your mortgage that you’ll be paying interest on it for the length of your loan.  So if you can find a way to pay it up front, you’ll save more money in the long run.

Fannie Mae never specifically stated the exact reason for the rate hikes.  But it’s been speculated that it softens their risks on the loan (hence the lower fees for those with better credit scores and higher down payments) as well as the money they’ve lost because of the current housing market and unpaid mortgages.

So will this prevent some people from purchasing a home?  I doubt it will have any adverse reaction on the already declining mortgage market because you’re stuck paying it no matter what.  And it’s not significant enough to make a difference, especially when buyers can purchase homes for a lot less than they could have years ago.

What’s your take on the fee increase?  Do you think it will affect the housing market?  I’d love to hear your opinions.  Please leave a comment or visit me online.

Home sizes begin shrinking

As we’ve seen housing values decreasing steadily over the past few years, there’s a new trend on the horizon.  According to REALTOR magazine, now the size of homes will start to get smaller.

Here’s the numbers: In 2009, the average size of a new single-family home was 2438 square feet.  In 2010, it was 2377.  The peak was in 2007-2008 at 2520 square feet.   And for 2015, they’re predicting only 2150 square feet.  To give you a comparable, in 1970, the average was about 1500 square feet.

So why the shrinking?  According to the National Association of Home Builders, demographics (U.S. population) plays a big part.  This past year, 25% of the population was made up of people aged 55 and older.  By 2050, they expect that percent to be 31.  So you have an older generation who doesn’t want to deal with huge spaces to keep clean and maintained.  And then you have a younger population who is more energy conscious and only wants to buy what they feel they need.

Because of this, we can expect to see a lot more “green” features.  You’ll most likely see appliances with energy star ratings, energy efficient furnaces and water heaters, and flooring made from recycled materials.

And because of the shift in size, it makes sense that we’ll see a trend in making the most of your space.  So instead of seeing wall units to house TVs and electronics, it’s likely that builders will add built-ins where the space is part of the wall to house these items.   I can also picture under-cabinet DVD players and iPod holders.

So what do you think of the shift in size?  If we’re going to keep building new construction, it means we can put more homes on less space.  Since the older generation is most likely to downsize when they grow out of a home, it makes sense that more smaller homes be available.  I’d love to hear your comments.  Please post below or visit me online.

Courts could change future of foreclosures

A big decision by a Massachusetts court last week could change the way foreclosures  are viewed in this country.  Because of a lack  of signed paperwork, the Supreme Court in Massachusetts ruled that two banks couldn’t legally foreclose on homes.

Mortgage paperwork needs to be physically signed if title can properly be transferred  from one party  to another.  In the foreclosure process, the loan can get transferred numerous times before being sold to investors.  It’s very possible (as in this case) that paperwork misses getting signed from one transfer to another.

One of the justices stated in their ruling that the party that wants to foreclose most hold the mortgage at the time of sale to actually have the authority  to foreclose on the property.  This is the first ruling by a state high court regarding banks being able to foreclose without proper paperwork saying they hold the mortgage.  Since cases were filed in many other states around the country regarding this same issue, many were waiting to hear about what Massachusetts decided first.

And now it’s possible that the plaintiffs in this case own their home free and clear.  No more mortgage payments and no issues of foreclosure.  So what does this mean?  Make sure to find out if  all paperwork is in order before leaving your home.  You will definitely want to consult with an attorney to help you with this.  Keep all paperwork received from your lender in a file, as well as information about anyone you spoke to on the phone, the conversations you had, and dates and times.  This will be a paper trail for your benefit if an issue ever arises. 

I couldn’t agree more with the Supreme Court here.  Nobody should be allowed to take possession of your home unless they truly hold the loan.  It’s true that you technically aren’t the owner of a home unless you have a zero balance on your home.  But there needs to be paperwork in place regarding a transfer of title if it ever comes to that.

More of this decision can be found here. I can be reached via my Web site.

How long to keep financial records

If you’re anything like me, you want to shred bills and documents as soon as you send the check in the mail or pay online.  You don’t want all that extra clutter hanging around.  While that can be good for some items (junk mail, magazines, etc.) it doesn’t always work for financial documents.  If you own a home, have a credit card, are self-employed, have a job, or all of the above, here is some information about how long to keep your financial records.

Let’s start with home ownership documents.  These include closing statements (your HUD or RESPA, for example).  You’ll want to save that information for at least six years after you purchase the home.  This is important for selling the home (if you do during that time period) because it can affect how much you pay in capital gains tax.  It’s also important to keep any receipts for home improvement projects.  Some could be a tax write-off and others may also affect property taxes and capital gains tax.

If you use your credit card to purchase items that can be a tax deduction, you’ll want to keep your statements for a good seven years.  Otherwise, you can shred the statement once your receipts match what is listed on the statement for the month.

In terms of tax paperwork, it’s important to know that the IRS has three years from your filing date to audit your return if it suspects good faith errors.  They have up to six years to challenge a return if they suspect you underreported your gross income by 25% or more.  So you’ll want to keep all your tax returns for at least six years.  You have three years once you file if you find a mistake on it and file an amended return for a refund.

You can easily get rid of regular bills once you see the check against it has cleared.  You will want to keep any receipts or bills for more expensive purchases, such as jewelry, computers, televisions, etc.  This you’ll want to save for insurance purposes.

You can get rid of paycheck stubs once you compare it against the W-2 you receive for all your work the previous year.  If everything matches up, toss the original stubs.  If not, you’ll want to request a corrected form from your HR department.

If you have more specific questions about how long to keep certain financial records, your CPA is the best person to speak to, especially if it’s related to tax information.  If you have any real estate questions, please visit me online.