Terrific Tips for Minnesota First Time Home Buyers and first time buyers everywhere

Are you currently thinking about buying your first house? Real estate is a fantastic investment. Don't let the media hype fool you: low interest rates combined with reduced home prices make this an excellent economic environment for first-time home buyers. Here are a few tips to help you along the way.

The first and most important thing to remember is to buy only as much house as you can afford. Just because a lot of young people in your area are buying gigantic homes with acres of property and four car garages doesn't necessarily mean they could afford their mortgages.  All you have to do is look at the foreclosures situation to see examples of  people who purchased more than they should have.

Adjustable rate mortgages, or ARMs, have been exceedingly popular in the last ten years. When the housing market was on fire a few years ago, banks were giving out loans to practically anyone, regardless of their income or credit.

ARMs made it possible for people to buy enormous homes even though they didn't make a lot of money because they start out with low payments and then balloon as time passes. This is a big contributing factor to the current housing crisis.  More and more people who had adjustable rate mortgage loans are defaulting as their homes go into foreclosure.  I tell you this not to discourage you from looking at ARMS, but to help you understand the risks.  In fact, FHA offers a great ARM that have 1% annual caps and a lifetime cap of 5%.  This will beat any conventional ARM offered.

Because the banks are feeling the crunch, credit standards are being raised. If you are uncertain of your credit score, it is wise to check online with a company like TransUnion or Experian to find out where you stand before you apply for a home loan. Clear up any financial loose ends and get your score looking the best it can before you start the home loan process. You'll get a better interest rate and have more leverage with lenders.  It may even allow you to get 100% financing.  Yes, we still can do 100% financing and you don't have to be a veteran.

As far as your down payment is concerned, you may want to come up with as much money as you possibly can. Why, you ask? PMI, or principal mortgage insurance, will add to your monthly payment until you've paid for twenty percent of your home. Even if you can't get that much money together, and most first time home buyers simply can't, try your best if you want to avoid PMI.  As an added bonus, a nice down payment improves your chances of getting your loan in the first place.The good news is that your PMI might be deductible.  You have to have an adjusted gross income of under 100K to deduct it all otherwise it will phase out when it reaches 110K.

You will pay half a percent to one and half percent of your loan value every year until it reaches approximately 75-80% of either the initial loan balance or of the market value.  The rules are different for FHA and conventional loans and vary slightly.  Generally,lenders won't tell you that you're eligible to get your PMI dropped from your payment. So, be sure to keep tabs on your remaining loan balance and contact your lender to get the PMI dropped. It will save you quite a bit of money in the long run.

Take Advantage of Low 30-Year Fixed Rates

Are you looking to buy a home?  You are actually at a great advantage now, despite all the horror stories on the news every night. The astounding number of foreclosures across the country has forced the government to find ways to stimulate the economy. One of the major benefits for buyers in the market today is the low 30-year fixed rate.

Recently, 30-year fixed rates dropped to the lowest level in the last four years. The average fixed mortgage rate in the final weeks of January 2008 was 5.48%, marginally above 2004's low of 5.40%. This marks the third consecutive week that 30-year fixed rates were below six percent.

In a battle to combat a recession, the Federal Reserve implemented key interest rate cuts.  This has been one of the main factors in the drop, along with a further weakening of the economy. It is hoped such a large drop in rates will spur more people to buy homes, whether new or existing.

For current homeowners looking to refinance, the current low 30-year fixed rate is the perfect opportunity. With so many in foreclosure peril from adjustable rate mortgages, homeowners are looking to save money and lower payments.

The advantages of a 30-year fixed rate are obvious. While the payments initially may be more than an adjustable rate mortgage, the fixed nature of the mortgage will keep payments steady. When adjustable rates balloon, as they have recently, the fixed rate will remain the same. Also, the early payments of a 30-year fixed rate loan are primarily interest, which is tax deductible. Monthly financial planning is easier when you know what each payment will be.

One of the cons of a 30-year fixed rate is higher interest. With a 15-year mortgage, payments are much higher but interest is significantly lower. Also, without a down payment, mortgage insurance is usually required. This adds a small amount onto each payment until a percentage of the principle has been paid, usually twenty percent. After this the private mortgage insurance (PMI) is no longer required. If you have PMI in your mortgage payments, be sure to notify the lending institution when you have paid off that percentage of your property. Otherwise they may continue to charge you for it.

Though there are some slight drawbacks associated with a 30-year fixed rate mortgage, they are generally a homeowner's best bet. Some studies have shown homeowners saving money on adjustable rate mortgages, but these are rare cases. Especially with the current economic uncertainty, a 30-year fixed rate is a reliable constant.

Lending institutions have varying interest offers. Many Websites report on the current rates offered by large lenders. A good site has no direct connection or interests attached to any of these companies. Be mindful of any sites that offer advertising for any financial institutions.

With smart shopping, it's a great time to find a home with the current 30-year fixed mortgage rates. The housing situation will recover, and the rates will go up. So take advantage of this time to buy your dream home or refinance your existing property. Visit our mortgage broker website at http://www.ventureloanapp.com

Loan Size on FHA Mortgage Loans Will Be Increased

Here's what we know so far:  There will be an FHA modernization bill that passes this year.  The proposed bill is bouncing back and forth between the House and Senate.  Once thing is for sure, or as sure as we can be at this time, the FHA mortgage loan limit will rise to 125% of the median home price with a cap of $730K  This will have a bigger affect on areas of the country that don't utilize FHA to a great extent at the moment-Areas such as the two coasts which have more expensive housing.  FHA mortgages price better than conventional jumbo loans.  This can make that big house more affordable.

In Minnesota, our average home is just over $200K.  At the same time, this new FHA loan limit will help as it will bring in another financing option to consider.  With regards to refinancing, this might prove to be extremely advantageous.  FHA allows you to refinance up to 97% of a homes value.  Unlike conventional loans, the mortgage insurance-called MIP( mortgage insurance premium) is not predicated on loan to value or credit scores.  For this reason, I could see many people with conventional loans refinancing into an FHA loan in order to get a lower payment.  This will also help on reverse mortgages.  If the limit is increased, people can do larger FHA reverse mortgages in place of conventional reverse mortgages.  So the big question under the new law is how big will the new FHA mortgages be allowed in Minnesota. 

Some sticking points revolve around the down payment requirement with FHA. Will they allow a zero down product.  Fannie Mae and Freddie Mac allow zero down with programs such as the Flex 100, My Community and Home Possible.  FHA may create a similar program.  The lower mortgage insurance with FHA will make a dramatic difference in the housing payment when all the other options are compared side by side.

There are a couple of other points of contention, such as down payment assistance and bonding requirement vs. net worth requirement for mortgage brokers that want to offer FHA loans.  These points are being fine tuned. The future for FHA loans looks very bright indeed. 

To find out more about FHA mortgages and the FHA Secure Mortgage program, visit our website http://www.ventureloanapp.com  and specifically our FHA page http://www.ventureloanapp.com/FHA_20_LOANS.html

Sellers:  Think about the statistics in the report below.  Are you marketing your home correctly given the data below?  If you're not, then you'd better think twice.  The data below is comprehensive and tells you who the buyers are in today's market.  Do you see what it doesn't say?  It doesn't say they read the newspaper or go to open houses.  That's what our generation of buyers and sellers did-before the internet.  This is why you need an updated internet based marketing campaign.  You may be best served to select an agent who is in tune with these statistics.

MNAR has Minnesota home buyer characteristics from NAR report
The last section of the Minnesota Association of REALTORS® (MNAR) Resource Update highlights information specific to Minnesota that was generated from NAR's Home Buyer and Home Seller Survey.

The data was collected by NAR as part of their annual profile. NAR received 9,966 responses nationally, and an additional 441 in Minnesota.

Some characteristics of Minnesota home buyers:

Median age of all home buyers was 36 years old. For first-time buyers, the median age was 28.
Household income of home buyers was $69,300.
69 percent of home buyers said there were no children under 18 residing in the property.
56 percent of home buyers were married couples, 24 percent single females, 11 percent single males and 9 percent were unmarried couples.
6 percent of home buyers were born outside of the U.S., compared with 9 percent nationally.
First-time home buyers accounted for 42 percent of homes purchased in 2007.
66 percent of first-time home buyers were between 25 and 34 years old.
30 percent of buyers use social networking websites (e.g., Myspace, Facebook, Linkedin).
Among home buyers aged 18 to 24, 59 percent reported using social networking sites.
19 percent of homes purchased were new construction.
64 percent of homes purchased were detached single-family.
The typical home buyer purchased a home 14 miles from their previous residence.
The median price of homes purchased was $221,900 compared to $215,000 in the U.S.
The typical buyer purchased a home that was 1,850 square feet in size.
Recent homebuyers plan to live in their home a median of 10 years.
Source: Minnesota Association of REALTORS®

If you want to begin an online search for a new home, one excellent place to start is on my website.  http://www.selling.mn

It’s a much different picture renovating a home in 2007 than in 1997. Fueled by huge gains in the price of real estate, homeowners a decade ago were tapping home equity with little care since prices were expected to keep climbing, more than covering the cost of such improvements.

Today, with the slowdown in real estate and the widening damage in the subprime loan market, home prices aren’t rising much – and falling in some places. And lenders tend to be a lot choosier these days about who to do business with. So before considering a home renovation, it makes sense to make sure your financial house is in order:

Start with your credit report: If you’re considering borrowing, make sure your credit report and payment records are in the best possible shape. As in most economic crises, lenders go from being permissive to squeamish in an instant, so even people with good credit behavior are going to be under the microscope. Start by checking your credit report -- you have the right to get all three of your credit reports – from Experian, TransUnion and Equifax – once a year for free. You can do so by ordering them at www.annualcreditreport.com, but do so at staggered times throughout the year so you can catch potential errors in your report as they happen. Also, if you need to clean up any bad behavior – late bills, heavy credit card debt, clean it up before you wander back into the real estate market. Remember that a bad credit score can raise the total cost of your mortgage.

See what kind of payoff your chosen renovation will have: During the housing boom, people thought virtually any renovation would offer big returns. That wasn’t true then, and it’s particularly untrue now. Take the time to figure out what renovations have the best chance for return on investment now – go to Remodeling magazine’s annual Cost vs. Value report online (http://www.remodeling.hw.net/content/CvsV/CostvsValue-project.asp?articleID=381305&sectionID=173) and check 2006 project cost averages for your region of the country. In this market, renovate because it’s going to bring you comfort or pleasure, not because you’re expecting immediate profits.

Know how long you’ll need to stick around: When you sell, remember that most married couples can exclude from their taxable income up to $500,000 of gain and most individuals filing single or married filing separately can exclude up to $250,000. It’s required that you must have owned and used your home as your principal residence for two out of five years before the sale. The exclusion is generally applicable once every two years. However, if you are unable to meet the two-year ownership and use requirements because of a change in employment, health reasons or unforeseen circumstances, then your exclusion may be prorated.

Beware the bump in property taxes: The great thing about a more valuable home is the potential higher value when you sell. The bad thing is a visit from the county assessor – more valuable property tends to lead to higher tax assessments. Make sure you cannot only afford the cost of renovation, but what you’ll need to pay higher taxes if your home is reassessed.

Don’t forget to deduct applicable sales tax: If sales tax was imposed on a major renovation or if your state or locality imposes a general sales tax on the sale of a home or the cost of a substantial addition or major renovation, you might be able to deduct it.  This alternative is particularly valuable in low-tax states, and the sales tax paid on the purchase of some large items including the purchase of a home or major addition can be added to the table amounts.

Make sure your renovation makes your home salable: A discussion with a real estate agent or someone familiar with the value of improvements in your immediate neighborhood can tell you what will add to value or take it away. For instance, a big addition can take away from the value of a home if it’s not aesthetically in tune with the rest of the neighborhood. Obviously, any renovation that keeps your house on the market longer better be worth it now because it might damage your sales prospects later.

January 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by  John Mazzara CFP CLU CHFC CEBS CMB MBA MS-Financial Planning Associates 952-929-2577 http://www.investments.mn , a local member of FPA

Sometimes the unthinkable happens.  Countrywide being bought out by B of A is one of those events.  This is an example of how bad the lending market is at the moment.  Countrywide stock had dropped from 45-5 dollars as of yesterday before the buyout was announced.  It was rumored that they may even be forced into bankruptcy.  The deals not done until it's done-so time will tell.  What will be interesting will be the number of non performing loans and how many more will fall into that category before it's all over.  Countrywide has a reported 26 Billion dollar portfolio of Option Arm loans.  These are the loans that most easily fall into the toxic debt category.

 

Here are some videos you might like to watch regarding mortgages:

Wealth Building 101: Leverage
CLICK HERE

How Credit Works
CLICK HERE

Stop Foreclosure
CLICK HERE

No Payments For Life
CLICK HERE

Interest Only-is it right for me
CLICK HERE

Identity Theft Protection
CLICK HERE

Construction Loans
CLICK HERE

Fixed Rate Security
CLICK HERE

The Home-Buying Process
CLICK HERE

All About ARMs-Why Get One?
CLICK HERE

I have just finished writing a book about real estate investing called "Reality Based" Real Estate Investing. It is based on my 23 years of buying and selling real estate. I KNOW you will find valuable information in this book. If you would like to learn more or order a copy-please visit http://www.RealityBasedRealEstateInvesting.com

 

We recently sent out a press release that talks about the current mortgage market meltdown.  The State of Minnesota may be making the current situation worse.

View it here:

http://www.prweb.com/releases/2007/08/prweb545749.htm