How to Qualify for an FHA Mortgage

By Christen Nichols
How to Qualify for an FHA Mortgage

If you’re concerned about getting approved for a conventional mortgage, keep your dreams of homeownership alive by considering a mortgage insured by the Federal Housing Administration. For borrowers who meet FHA requirements, this mortgage alternative is a terrific way to buy a home with a low down payment and less-than-perfect credit.

What Are the Requirements for an FHA Loan?
In order to obtain approval for an FHA loan, the borrower must satisfy the following requirements:

  • Steady Employment History – Borrowers typically must have been regularly employed within the past two years. Self-employed borrowers have to prove that their business has drawn stable income for at least two years; verification, such as tax returns or company documents, is required.
  • Ability to Pay – This is determined by two formulas: the front-end ratio and the back-end ratio. The front-end ratio refers to the entire amount that the borrower spends on housing costs, and it must be less than 31 percent of the borrower’s gross income, with some exceptions that push limit up to 40 percent. This includes expenses such as the principal, interest, property taxes, homeowners association fees, mortgage insurance, and homeowner’s insurance. A borrower’s back-end ratio, also known as the debt-to-income ratio, encompasses all of the borrower’s debts, including the mortgage payment, credit debt, and personal loans, and it should be less than 43 percent.
  • Financial Soundness – The borrower must have a credit score of at least 580 and be able to afford a minimum down payment of 3.5 percent. Some institutions may accommodate lower credit scores if the borrower is able to pay a larger down payment. She must be a minimum of two years out of bankruptcy and not have a foreclosure in the past three years. All her federal student loans and income taxes must be current.
  • Residency – The borrower must be a lawful U.S. resident with a valid Social Security number, and she must be the occupant of the home.

What Costs Are Associated With an FHA Mortgage?
Like conventional mortgages, there are costs associated with FHA loans that the borrower has to pay when the loan closes, including lender fees, prepaid interest, inspection expenses, and attorney fees. The FHA mortgage program permits lenders and property sellers to pay some or all of the buyer’s closing costs.

To insure the mortgage against default, the borrower must also pay an annual mortgage insurance premium. The MIP varies based on the terms of the loan, including the principal, loan-to-value ratio, and term. On average, expect to pay 0.85 percent of the loan amount each year.

Borrowers may be required to pay a one-time additional mortgage insurance fee at the time of closing, called the Up-front Mortgage Insurance Premium. As of 2017, the UFMIP is equal to 1.75 percent of the mortgage.

Want to learn how long it’ll take you to pay off your mortgage? Run the numbers through Bankrate’s mortgage calculators.

What Are the Disadvantages of an FHA Mortgage?
Since an FHA loan permits a lower down payment, you can expect to pay more interest over the life of the loan than you would with a conventional mortgage that necessitates a larger down payment.

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Foreign Buyers Snap Up U.S. Real Estate in Unprecedented Surge

Foreign investments in U.S. real estate have surged nearly 50 percent as of late, according to the 2017 Profile of International Activity in U.S. Residential Real Estate from the National Association of REALTORS® (NAR).

The report shows that between April 2016 and March 2017, foreign buyers and recent immigrants purchased over $150 billion in residential property—$153 billion, to be exact. Marking a new survey high, this boost is a 49 percent increase from last year’s $102.6 billion rank.

“In the face of global economic and political uncertainty—that is, Venezuela upheaval, Brexit, Syrian refugees, Russia meddling, and even the very nasty U.S. Presidential election campaigning—people with money were searching for something very safe,” says Lawrence Yun, NAR chief economist and senior vice president of Research. “As a consequence, both the demand for U.S. Treasury bonds and U.S. real estate rose.”

While the report shows an influx of buyers from the top five countries, an increase in sales dollar volume from Canadian buyers seems to be the largest driving factor behind the boom. Canadian transactions increased from last year’s $8.9 billion to a whopping $19 billion, a new high for Canada.

But Canadians are far from the only foreign buyers currently slaying the U.S. real estate game. Despite the rising Canadian numbers, China still reigns as the top country for sales dollar volume for the fourth consecutive year.

“Canadians bought vacation homes in warm weather states, driven largely by the huge housing wealth accumulation in Canadian markets like Toronto and Vancouver,” says Yun. “Chinese bought partly because its economy continued to grow at 6 percent or better. Such a growth rate, though light by recent Chinese standards, is enough to crank out a new billionaire every week. Then consider how many millionaires are being created in China.”

While the three states with the highest foreign activity are Florida, California and Texas, other cities are seeing a rise in foreign traffic, too.

In Seattle, Chinese buyers are flocking to the real estate market, drawn by the burgeoning tech scene. “Seattle is one of the hottest markets in the country right now due to new job creation in the tech industry,” says Mark Kitabayashi, managing broker with TeamMark Windermere Real Estate. “That given, our prices are still reasonable when compared to a lot of the larger cities.” Prices in the heart of the city land around $800,000, but out in the suburbs, you can still score a property for closer to $300,000 – $350,000—a reasonable investment for both foreign and domestic buyers. In fact, the median price in Seattle’s suburbs is comparable to the median price paid by foreign investors throughout the country, which came in at $302,290—an increase of 9 percent from last year’s $277,380.

Another reason foreign investors are flocking to Seattle? The market’s relationship with neighboring Vancouver, B.C. “When B.C. added an additional 10 percent tax, that flocked a crowd here,” says Kitabayashi. Politics factor in, too. “When Trump became president, foreign investors started heading back to B.C. Now it’s evening out,” notes Kitabayashi.

Taxes may also bring certain foreign buyers to the U.S. “We see that with the Japanese buyers,” says Kitabayashi. “There are certain tax advantages between Japan and the U.S. that might be dissolving in a few years, so we’re seeing Japanese buyers surging before that advantage goes away.”

When looking to the future of foreign investments, Christine Hansen of CENTURY 21 Hansen in Fort Lauderdale, Fla. addresses the EB-5 legislation, which is currently up for renewal on September 30. The program, which rewards foreign investors with permanent U.S. residency, is currently offered to buyers who spend $500,000 or more. “There has been talk of raising this amount to $1.35 million,” says Hansen. “This would be very detrimental to the program’s future viability, and would jeopardize the continued draw of direct foreign investment into the U.S.” To put this in perspective, only 10 percent of foreign buyers paid more than $1 million on a property in the past year. “While the EB-5 program isn’t perfect, reform should be achieved through a legislative process with careful consideration,” stresses Hansen.

“America offers equal private property rights protection to U.S. residents and foreigners,” says Yun. “That’s the big attraction as to why foreigners buy in the U.S. But the drawback is that foreign buyers could be gobbling up properties at the expense of U.S. homebuyers, particularly young, first-time homebuyers. To ensure there’s enough, the policy focus should be about constructing more homes in the U.S., rather than trying to limit foreign buyers.”

So how can real estate professionals hoping to work with foreign buyers move forward with confidence?

“Take the time to educate yourself on their customs and lifestyles,” says Hansen. She notes that foreign clients are generally loyal, and if you’re open to learning about their culture and guiding them through the American buying process, you will likely have a great client for years to come. According to Kitabayashi, it’s also important to learn about real estate practices in the buyer’s culture so that you know where they’re coming from and can help shepherd them through the differences.

For a range of resources (many of them included in NAR dues) to help you prepare for working with international buyers, please visit nar.realtor/working-globally.

More Buyers Use Co-Borrowers on Mortgages

More home buyers have co-signers on their mortgage loans in order to help defray the rising costs of real estate, according to a new report released by real estate data firm ATTOM Data Solutions. In the second quarter of this year, 22.8 percent of mortgage applications involved a co-borrower, up from 20.5 percent a year earlier, the report shows.

Dozens of programs and private companies are emerging to act as co-borrowers for consumers by offering a down payment in return for a share of equity in the home, MarketWatch reports. Family members who help with a down payment may also be considered co-borrowers. Buyers who have a co-borrower tend to buy smaller but more expensive homes, according to ATTOM Data Solutions’ analysis. They also tend to have lower interest rates and put more money down on the home, which helps avoid the need for mortgage insurance.

“My takeaway is that co-borrowers are buying in more expensive markets but are having to put more down to compete in those markets,” says ATTOM Data Solutions vice president Daren Blomquist. “The more money down, along with a co-signer who may have better credit, is helping these co-borrowers secure a lower interest rate. But the homes they are buying tend to be smaller—an indication these skew toward first-time home buyers.”

Source: “‘Co-Borrowing’ to Afford a Home Is Gaining Popularity. Who’s Doing It and Why?” MarketWatch (Sept. 8, 2017)

Looking for Your Dream Home? Know What You Want vs. What You Need

Looking for Your Dream Home? Know What You Want vs. What You Need | Keeping Current Matters

In this day and age of being able to shop for anything anywhere, it is really important to know what you’re looking for when you start your home search.

If you’ve been thinking about buying a home of your own for some time now, you’ve probably come up with a list of things that you’d LOVE to have in your new home. Many new homebuyers fantasize about the amenities that they see on television or Pinterest, and start looking at the countless homes listed for sale through rose-colored glasses.

Do you really need that farmhouse sink in the kitchen to be happy with your home choice? Would a two-car garage be a convenience or a necessity? Could the ‘man cave’ of your dreams be a future renovation project instead of a make-or-break right now?

The first step in your home buying process should be getting pre-approved for your mortgage. This allows you to know your budget before you fall in love with a home that is way outside of it.

The next step is to list all the features of a home that you would like, and to qualify them as follows:

  • ‘Must-Haves’ – if this property does not have these items, then it shouldn’t even be considered (ex: distance from work or family, number of bedrooms/bathrooms).
  • ‘Should-Haves’ – if the property hits all of the ‘must-haves’ and some of the ‘should-haves,’ it stays in contention but does not need to have all of these features.
  • ‘Absolute-Wish List’ – if we find a property in our budget that has all of the ‘must-haves,’ most of the ‘should-haves,’ and ANY of these, it’s the winner!

Bottom Line

Having this list fleshed out before starting your search will save you time and frustration, while also letting your agent know what features are most important to you before starting to show you houses in your desired area.


Ugly Home Features Buyers Can’t Overlook

Home shoppers can get hung up on cosmetic issues of a home, even though often times the problems are relatively inexpensive to fix.

“Cosmetic issues are a big problem for a lot of home buyers,” Linda Sanderfoot, a real estate professional with Coldwell Banker in Neenah, Wis., told realtor.com® in a recent article.

Buyers can easily get distracted by flaws or minor repairs, like the carpet or dated light fixtures. They may even let a sale fall apart because of it.

Realtor.com® recently featured several potential home features that may jeopardize a deal, but really shouldn’t.

Ugly kitchen cabinets

Sure, the average kitchen remodel could set you back up to $62,158, according to Remodeling magazine. But most kitchens don’t require a full renovation. “As long as the cabinets aren’t 20 or 30 years old, repainting and adding new handles is relatively cheap and can change the entire look of the room,” says Sanderfoot. Refinishing an existing cabinet will cost about $1,400 to $3,500, according to HomeAdvisor, a home services marketplace.

Wallpaper

Wallpaper covering the rooms may make some buyers want to run. But removing and hanging wallpaper is a relatively easy DIY job. Or, hiring a contractor for professional wallpaper installation costs about $500 per room, according to HomeAdvisor.

Tacky paint colors

Bubble-gum pink, anyone? Try to help buyers overlook distracting colorful walls. Have them imagine it painted a color to make the room even look larger, like gray or a cool blue. After all, paint tends to be an easy fix, either as a do-it-yourself job or done professionally. Professional painters typically cost from $380 to $790 for a 120-square foot room.

Carpet

“Buyers always focus on old or dirty carpeting,” says Sanderfoot. But a good cleaning can bring new life to worn carpet. Shampoo vacuums cost $90 to $200, a professional-grade carpet cleaner can cost $400, or you can rent one from a hardware store for about $25 to $30 per day. Professional carpet cleaning companies tend to charge a minimum of $75 to $109, according to CostHelper.com. For home purchasers who just can’t get past the carpet, they may want to budget for installing new carpet at about $2 to $5 per square foot for middle-grade carpet material, according to HomeAdvisor (often 1,200 square foot of new carpet will cost about $2,400 to $6,000).

View more common home shopper distractors at realtor.com®.

Source: “6 Off-Putting Home Features That Shouldn’t Be Deal Breakers,” realtor.com® (Aug. 3, 2017)

How Long Do Most Families Stay in Their Home?

How Long Do Most Families Stay in Their Home? | Keeping Current Matters

The National Association of Realtors (NAR) keeps historical data on many aspects of homeownership. One of the data points that has changed dramatically is the median tenure of a family in a home, meaning how long a family stays in a home prior to moving. As the graph below shows, for over twenty years (1985-2008), the median tenure averaged exactly six years. However, since 2008, that average is almost nine years – an increase of almost 50%.

How Long Do Most Families Stay in Their Home? | Keeping Current Matters

Why the dramatic increase?

The reasons for this change are plentiful!

The fall in home prices during the housing crisis left many homeowners in a negative equity situation (where their home was worth less than the mortgage on the property). Also, the uncertainty of the economy made some homeowners much more fiscally conservative about making a move.

With home prices rising dramatically over the last several years, 93.9% of homes with a mortgage are now in a positive equity situation with 78.8% of them having at least 20% equity, according to CoreLogic.

With the economy coming back and wages starting to increase, many homeowners are in a much better financial situation than they were just a few short years ago.

One other reason for the increase was brought to light by NAR in their 2017 Home Buyer and Seller Generational Trends Report. According to the report,

Sellers 36 years and younger stayed in their home for six years…”

These homeowners who are either looking for more space to accommodate their growing families or for better school districts are more likely to move more often (compared to 10 years for typical sellers in 2016). The homeownership rate among young families, however, has still not caught up to previous generations, resulting in the jump we have seen in median tenure!

What does this mean for housing?

Many believe that a large portion of homeowners are not in a house that is best for their current family circumstance; They could be baby boomers living in an empty, four-bedroom colonial, or a millennial couple living in a one-bedroom condo planning to start a family.

These homeowners are ready to make a move, and since a lack of housing inventory is still a major challenge in the current housing market, this could be great news.

A ‘Buyer’ in Hand is Worth Two in the Bush

In today’s highly competitive seller’s market where there are more buyers than there are homes for them to buy, some sellers may feel like the ball is in their court.

And they would be right when it comes to choosing which offer to accept, the closing date, or even which improvements they are willing to make to their house prior to selling.

One thing to remember though, is that there is always a line that shouldn’t be crossed.

Interest rates can change, financing might not go through, the appraisal might not come back at the price that you have agreed to. These are all opportunities to work with your buyer to make sure that the sale still happens.

You may think that, because buyer demand is so high right now, you can choose to make your buyer jump through hoops. But what happens if they reach their limit and need to walk away? You’re starting over… weeks, maybe months later… and other buyers may wonder what’s wrong with the house since the last deal fell through.

The Golden Rule

We were all taught from a young age to “treat others as you would like to be treated.” This shouldn’t change once you have a buyer who seems as though they would do anything to buy your home.

Do Your Future Plans Include a Move? What’s Stopping You from Listing Now?

Do Your Future Plans Include a Move? What's Stopping You from Listing Now? | Keeping Current Matters

Are you an empty-nester? Do you want to retire where you are, or does a vacation destination sound more your style? Are you close to retirement and not ready to move yet, but living in a home that is too big in size and maintenance needs?

How can you line up your current needs with your goals and dreams for the future? The answer for many might be the equity you have in your house.

According to the latest Equity Report from CoreLogic, the average homeowner in the United States gained $14,000 in equity over the course of the last year. On the West Coast, homeowners gained twice that amount, with homeowners in Washington gaining an average of $38,000!

Do you know how much your home has appreciated over the last year?

Many homeowners would be able to easily sell their current house and use the profits from that sale to purchase a condo nearby in order to continue working while eliminating some of the daily maintenance of owning a house (ex. lawn care, snow removal).

With the additional cash gained from the sale of the home, you could put down a sizeable down payment on a vacation/retirement home in the location that you would like to eventually retire to. While you will not yet be able to live there full-time, you can rent out your property during peak vacation times and pay off your mortgage faster.

Purchasing your retirement home now will allow you to take full advantage of today’s seller’s market, allow you to cash in on the equity you have already built, and take comfort in knowing that a plan is in place for a smooth transition into retirement.

Bottom Line

There are many reasons to relocate in retirement, including a change in climate, proximity to family and grandchildren, and so much more. What are the reasons you want to move? Are the reasons to stay more important? Meet with a local real estate professional who can perform an equity evaluation to determine your options, today!

Scarsdale & Surrounding Area: PRICE INDEX FORECAST

Are Home Values Expected to Go Up or Down in Scarsdale & Surrounding Area? Check out the forecasted cumulative returns over the next 3 years.
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It’s important to make the most educated home-buying and -selling decisions is key – especially when it comes to the future value of your property. This Price Index Forecast report for the valuations over the next three years, arms you with the data you need to give you the peace of mind in making their real estate decisions.
This week for Scarsdale & Surrounding Area, the forecasted cumulative returns on home values here, provided by HouseCanary, are 3.6% at 1 year, 6.8% at 2 years and 9.7% at 3 years. This chart is a risk indicator and shows the home price index level compared to historical long-term trend. The greater the price’s distance from long term trend line, the greater the likelihood for a snapback or reversion to the long-term average. When the home price index is significantly above (or below) long-term trend this represents a signal of increased (or decreased) risk.

This predictive analytics report and e-newsletter is part of a new collaboration between HouseCanary and RISMedia in an effort to bring real estate professionals timely and local housing data in thousands of regional and local markets across the U.S. as well as provide RISMedia’s real estate news, information and business development insights of interest to brokers, agents, service providers and professionals serving the U.S. residential real estate industry.

The data provided from zip code and property address searches within each local market is solely provided by HouseCanary. Although the House Canary data has been produced and processed from sources believed to be reliable; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. To review HouseCanary’s full list of terms and conditions, click here. To learn more about HouseCanary’s suite of services, visit HouseCanary.com.

93.9% Of Homes in The US Have Positive Equity

93.9% Of Homes in The US Have Positive Equity | Keeping Current Matters

CoreLogic’s latest Equity Report revealed that ninety-one thousand residential properties regained equity in Q1 2017. The outlook for 2017 remains positive as well, as an additional 600 thousand properties will regain equity if home prices rise another 5% this year.

The study also revealed that:

  • Roughly 63% of all homeowners have seen their equity increase since Q1 2016
  • The average homeowner gained about $14,000 in equity between Q1 2016 and Q1 2017
  • Only 1.6% of residential properties are near-negative equity

Below is a map showing the percentage of homes with a mortgage, in each state, that have positive equity. (The states in gray have insufficient data to report.)

93.9% Of Homes in The US Have Positive Equity | Keeping Current Matters

Significant Equity Is On The Rise

Frank Martell, President & CEO of CoreLogic , believes this is great news for the “long-term health of the U.S. economy.” He went on to say:

“Homeowner equity increased by $766 billion over the last year, the largest increase since Q2 2014. The rising cushion of home equity is one of the main drivers of improved mortgage performance. Since home equity is the largest source of homeowner wealth, the increase in home equity also supports consumer balance sheets, spending and the broader economy.”

Of the 93.9% of homeowners with positive equity in the US, 78.8% have significant equity (defined as more than 20%). This means that nearly three out of four homeowners with a mortgage could use the equity in their current home to purchase a new home, now .

The map below shows the percentage of homes with a mortgage, in each state, that have significant equity. (The states in gray have insufficient data to report.)

93.9% Of Homes in The US Have Positive Equity | Keeping Current Matters

Bottom Line

If you are one of the many homeowners who are unsure of how much equity they have in their homes and are curious about their ability to move, meet with a local real estate professional who can help evaluate your situation.