The Industry Report

Gift Money for Down Payment

The fact is, it can be tough coming up with enough money for a down payment!

Say you needed 10%... 10% of $400,000 is a whopping $40,000!

Calculation:
$400,000 Purchase Price x 10% = $40,000 (required down payment excluding closing costs)

You've only managed to save $25,000 but you're ready to own; you're paying too much on taxes every year so the mortgage write-off would serve you well and the monthly payments are affordable. What do you do?

Lucky for you your parents really want to help and they've agreed to give you the difference for the down payment and closing costs...this is called Gift Money!

HOW DOES IT WORK? WHAT DO I HAVE TO DO?

You have to provide your lender with a notarized letter (signed by each of the givers) stating that the dollar amount given to you was a gift. Pretty simple huh? And what's great about it is that the money doesn't need to be seasoned. 

Also, there is no limit with respect to dollar amount on Gift Money that you can receive but there will be tax implications to the person gifting the money for amounts beyond the $12,000 annual exclusion (you have to file a gift tax for monies beyond $12,000).

*Disclaimer: I am not a licensed CPA so please consult with your local Tax Professional for more clarity on the tax implications of Gift Money.

For more questions on how you can use Gift Money for your down payment and how to appropriately structure your next purchase, you can contact me here or call me directly at (323) 810-2175.

The Origin of Credit

Did you know that Arthur Morris is the man responsible for creating the installment loan in (or around) 1910?

It was called the Morris Plan (clever name huh) and it was the first stab at making credit available to the average person despite heavy criticism that lending money to working class citizens had failure written all over it.

And yet the American economy today is built on credit!

Back then, the lending requirements were as follows:

• You needed two co-signers in order to qualify
• The loan term was set to 1 year
• Payments were made in weekly and monthly installments

Boy how things have changed since then.

 

Fannie Mae Lowers Down Payment Standard: great news for Los Angeles County Real Estate?

For many, every little percent makes the world of difference in getting approved for a mortgage. In California, with Los Angeles County being considered a declining market, many borrowers were hit with a declining market down payment standard that said "if the maximum allowable financing is 95%, we're automatically reducing that allowable limit by 5% (making it 90%) due to a declining market." This was devastating for many prospective homeowners who had already saved up a set amount of money in hopes of getting approved on a new home loan.

But as of June 1, 2008, Fannie Mae is making an effort at a solution for them...

"Fannie Mae, backing down from pressure from homeowner and real estate groups, will allow buyers in markets with falling home prices to purchase houses with 3 percent down payments, potentially increasing the company's risk...

Fannie Mae and Freddie Mac, created by Congress to increase mortgage financing and provide market stability, fulfill their mission by buying mortgages from lenders so banks have more cash to make new loans. The companies, adjusting to a rise in mortgage defaults, tightened loan standards to limit losses, introducing new fees to buy riskier loans and raising required credit scores...

The stricter down payment policy, adopted in December, will end June 1, Washington-based Fannie Mae said in a statement. Potential homeowners approved by the company's computer program will be able to borrow up to 97 percent of the value of the property, the company said. Other loans will be accepted with loan-to-value ratios of up to 95 percent. Previously, borrowers in areas such as parts of California, Nevada and Florida were required to put down 5 percent more equity than elsewhere." [Source: Bloomberg]

Are you thinking of buying a home in Los Angeles County and wondering how this might affect or help you if at all?

The prospect of a lower down payment requirement is enticing but the threat of costly PMI requirements is still present and raises the issue of affordability. Putting less down means you might have to incur mortgage insurance. Often times lenders would advise a 1st and 2nd combo and poof, problem solved. But in today's retracting secondary mortgage market this solution has become difficult to obtain.

So what should you do? Sit down with your Real Estate Agent and Mortgage Professional and go through the paperwork while asking questions. Sounds tedious and burdensome but the time spent doing so will yield you the best results.

Contact me here or call me directly at (323) 810-2175 should you have any questions. And be sure to check for Daily Mortage Updates here on the blog.

Attitude Is Everything!

[Photo Credit: Respres, a.k.a. Jeff Turner]

Quote: Do one thing. Do it well. Finish it. -- Author Unknown

I read this quote somewhere in the endless world of the blog-o-sphere and for some reason it really stuck with me. The thing is, we go through life's trials and tribulations and often times we give it less than 100%. I don't know about you but I hate that feeling...I really do! And yet there we go trudging along as life ticks by.

For me, the quote is a reminder and an inspiration to just do it! In regards to all facets of life, not just work... I'm of the humble opinion that if you can muster the strength to live by this rule, you'll truly feel better and you'll become a much happier person for it.

When you find it difficult, the Millionaire Mommy Next Door reminds us that your attitude is your choice.

[Guest Post] Down market doesn’t mean you have to lose everything!

We are lucky up here in the Portland area, with a market that hasn't really been all that bad compared to you, our friends to the south of us, in California. Your market has taken a hit that no one expected and it has hit a lot of families hard in the pocket book, but that doesn't mean walk away.

Ok, you bought a house for $750,000 and your payments are outrageous. Now your house is only worth $450,000, but don't give up on it so quickly. There are a lot of options for you, and why not use them? If you can afford to, continue to pay the payments and live there until the market turns around, and it will eventually.

Another option if you can't afford it is move out and rent it to someone who can afford it, if not all of your payment, at least some of your payment to stop some of the bleeding. You see, even if you can't afford $6,000 a month payments you may be able to afford $3,000 a month and if someone rents it from you for $3,000 a month, then $3,000 is all you need until the market turns around.

The last thing you can do, and the one I suggest to a lot of my clients in markets like yours, is to owner finance the property or do an assumption of the mortgage to another person. Right now a lot of banks are considering this again, because they would rather have someone paying the mortgage than having to take the home back, and there are plenty of people that would love the chance to take a mortgage on a house they love even if it is over-priced, just for the chance at home ownership.

So, don't walk away from your home, there are options, you just need to ask.

Todd Clark - broker
Kastings & Associates
Phone: (503)524-9494
Fax: (503)622-8739
E-mail: Todd@IFoundYourNewHome.com
Website: www.IFoundYourNewHome.com
My Blog: Helping Families Home

Daily Mortgage Rate Update: May 14, 2008

Today's big news in the mortgage markets is release of the Consumer Price Index; this is the most widely followed measure of inflation. As the rate of inflation changes, the markets will accordingly adjust interest rates (this includes your mortgage rates).

CPI rose lower than expectations giving us a slight Bond rally (which is often good for interest rates; a.k.a. lower rates) however...currently, Fed officials are still cautioning impending inflation saying that the markets are still unsettled. From Bloomberg:

"The central bank can't be ``complacent about inflation,'' Janet Yellen, president of the Fed Bank of San Francisco, said in a speech yesterday. Recent measures of consumers' outlook for prices ``highlight the risk that our attempts to deal with problems in the real economy could lead to higher inflation expectations and an erosion of our credibility,'' she said."

This news should alert us to lock-in mortgage rates at application since the threat of rising interest rates is possible.

Current Mortgage Rates:

Conforming Loan Amounts = Loan Amounts Below $417,000
($400,000 Loan Amount | 80% CLTV | 680+ FICO)

30-Year Fixed Rate Mortgage
5.875% (5.990 APR)

15-Year Fixed Rate Mortgage
5.375% (5.486 APR)

5/1 Adjustable Rate Mortgage
5% (5.109 APR)

7/1 Adjustable Rate Mortgage
5.5% (5.612 APR) 

*Disclaimer: Equal opportunity lender. Interest rates are subject to change upon changing market conditions and are also subject to change upon borrower qualification. Contact me directly to verify pricing.

Contact me for pricing on Adjustable Rate Mortgages as well as for pricing on loan amounts above $650,000.

Lock/Float Recommendation: Lock-in your mortgage rate at application!

 

[When the Consumer Says] I Didn't Know...

• I had a pre-payment penalty
• I had an adjustable rate mortgage, (or worse yet)
• I had a negative amortization (Neg. Am) loan
• I had to pay my taxes separately. I thought they were included in my monthly payment (an impound account)
• My closing costs were rolled into the new loan balance
• I had the option for lender-paid mortgage insurance
• I could Lock-In my rate during the application process
• I could use Gift Money as a source for down-payment
• I have three different credit scores (Equifax, Experian and Transunion)
• I could pay points to buy-down my mortgage rate, or better yet, that Seller Concessions could be used towards buying down my mortgage rate
  

As a consumer, do you ever feel like you fit into one of these categories?

To be better prepared/more informed, all you have to do is pay attention to what you're committing to on paper and ask yourself whether it makes sense for you. This includes reading the fine print and asking questions where necessary. If you're not getting any answers, you're probably working with the wrong professional.

Why the rant?

Because the Federal Trade Commission conducted a study for the Federal Reserve wherein the following results were obtained:

"Of those surveyed, 25% could not identify the annual percentage rate of their mortgage, and 25% could not identify the amount of settlement charges. Half could not correctly identify the amount of the loan. Two-thirds were unaware of prepayment penalties that could be charged during refinancing. Three-quarters did not recognize that the loans included charges for optional credit insurance." [Source: Forbes.com]

So, if you have a question or there is something that you're unsure of, ask me or tell me about it here.

Borrow Money When You CAN, Not When You NEED To!

Former AMR Chairman and CEO Al Casey once advised:

"Borrow money when you can, not when you need to."

It's sound advice and I'll tell you why...

• One of the key factors in determining whether you qualify for a mortgage is evidence of Strong/Stable Employment.

What's one of the first things you do when you've just been laid off of work? You turn you your emergency fund to cover your expenses, right?

What if you don't have an "emergency fund"? What do you do then? Why you turn to your home's equity of course. But by then you just might not qualify.

So doesn't it make sense when Al Casey says "borrow money when you can, not when you need to"? Food for thought...

Weekly Mortgage Update - May 12, 2008

Fed Funds Rate:
The Fed Funds Rate currently sits at a comfortable 2% since the last Fed Funds Rate cut on April 30, 2008. If you're wondering how this affects you...well, it improves your pricing on a Home Equity Line of Credit to Prime minus .45.

READ: Fixed Seconds and Home Equity Lines of Credit for clarification and guidelines.

The next scheduled Federal Open Market Committee (FOMC) meeting is June 25th at which point we expect the Fed to keep rates steady in light of rising inflationary concerns.

The Week Ahead:
Coming up this week we have: retail sales, inflation, housing and industrial & manufacturing reports. For a clearer look at the economic calender, click here.

Coming up...
Check back for our Daily Mortgage Rate Updates. But if you're wondering what pricing is like now, contact me here and let's go over your scenario.

 

Daily Mortgage Rate Update: May 9, 2008

The Balance of Trade was slightly lower for last month...two European banks left rates unchanged to fight against inflation yesterday...new prices of oil and continuing problems within the insurance industry have not been helping Bonds Prices here in the U.S.

What does all of that mean? It means here are your rates today with a recommendation to Lock!

Current Mortgage Rates:

Conforming Loan Amounts = Loan Amounts Below $417,000 ($400,000 Loan Amount | 80% CLTV | 680+ FICO)

30-Year Fixed Rate Mortgage
5.625% (5.725% APR)

15-Year Fixed Rate Mortgage
5.125% (5.275% APR)

*Disclaimer: We are an Equal Opportunity Lender. Interest rates are subject to change upon changing market conditions and are also subject to change upon borrower qualification. Contact me directly to verify pricing.

Contact me for pricing on Adjustable Rate Mortgages as well as for pricing on Jumbo Mortgages (loan amounts above $650,000).

Check back daily for pricing changes!

Lock/Float Mortgage Rate Recommendation: Bond prices are down so Lock your mortgage rate!