Foreclosed Home Buying Tips

Just like most things, the foreclosure market has its pros and cons. Therefore, the best way to approach it is to do your homework and research.

The most important step you can take in preparation for buying a foreclosed home is to become pre-approved for a mortgage-thus realizing your purchasing power. Becoming preapproved is a simple step; all you need to do is contact one of Ocean Communities knowledgeable loan officers with the following documents and licenses:

1. Drivers License
2. Most recent paystub(s)
3. Two years of personal tax returns including all w-2’s
4. Two years of business tax returns (if applicable)

Foreclosure sales are a great way for a buyer to get a home at a great price. However, there are some things one should know and look for when considering this option:

1. You should make sure to choose a Realtor that has worked with these types of sales before. An experienced Realtor will know what to look for when trying to negotiate the price of the home, along with setting realistic expectations throughout the process.
2. Foreclosed properties are sold in an “as is” condition. This is extremely important to know because most financing options will not allow you to close on your mortgage to buy the property unless the appraisal report reflects a flawless property. Appraisers have to ensure that everything is in working order and the property is “move in” ready. If the property needs to be worked on (examples: painting, trim, flooring repair, etc), it will need to be done prior to closing. Lets say you accept a contract in an “as is” condition and you need financing to buy the property. If the property ends up needing work, you risk losing your earnest money deposit or you will have to renegotiate with the selling bank to see if repairs can be made (which adds time to the process before you can close). 
3. If possible, find out who the selling institution is.  This is good to know because if a smaller bank is selling the property, less people are generally involved with the decision. Therefore, the response time to your contract negotiation and loan closing is much quicker. If the selling bank is a larger, recognizable bank, you should work with your realtor to understand realistic time frames for responses. This process can take anywhere between weeks and month, so it is recommended you consider smaller banking institutions.
4. Title costs for foreclosed homes can be extremely high. Most foreclosed homes require a Class D Survey that confirms that the property boundaries have not changed from what is listed on the Title. Improper right of ways or encroachments of structures by neighbors could alter these property boundaries. In addition, the Title has a record of all liens from past to present on the property. If the property has been vacant for some time, additional items may need to be cleared up by the Title Attorney.

Mortgage Rates: How low can they go?

It is official: mortgage rates have dropped to their lowest levels since 1951. This makes borrowing money to buy a home the cheapest it has been in the past 60 years. Whether you are buying your first home or upgrading to a home better suited for you, it is definitely the right time to buy.

By briefly looking at recent mortgage rates, potential borrowers can see that these rates really are extremely low. According to www.data360.org, the average 30 year fixed rate in September of 2006, just 5 years ago, was 6.40%. Let’s first look at a scenario using the mortgage rate from 2006:

Loan amount - $150,000

Loan Term – 30 years

Rate – September 2006 6.40%

*Repayable Amount - $337,773

Let’s look at the same scenario with TODAY’s 30 year fixed rate:

Loan amount - $150,000

Loan Term – 30 years

Rate – 4.125%

*Repayable Amount - $261,710

This scenario illustrates that a borrower would SAVE $76,063 when comparing today’s mortgage rate to the mortgage rate in 2006.

These rates will not be around forever, so if saving money is important to you, I suggest you stop by an Ocean Communities Branch near you.

*Repayable Amount – This figure assumes that a borrower will make their monthly payment on its due date each month for the entire loan term.

Low Mortgage Rates: Nothing Lasts Forever….



history of the national average interest rates since 1985



Mortgage rates continue to hover at extremely low levels. For instance, today’s 10 year fixed rate mortgage is 3.25% and today’s 30 year fixed rate mortgage is 4.50%. Borrowing money to refinance or purchase a home has rarely, if ever, been so cheap. HOWEVER . . . . . Don’t wait too long as history always proves, "nothing lasts forever."

On August 9^th, 2011, the FOMC (Federal Open Market Committee – the policy making branch of the Federal Reserve) will meet once again to discuss interest rates. The FOMC uses the Federal Funds Rate* as its primary tool to influence interest rates and manipulate the economy. If the FOMC decides to change this rate, it will most likely increase, meaning money will become increasingly expensive to borrow. Though it is unlikely that the increase in the Federal Funds Rate will be drastic, one can never be sure of anything. This Committee meets roughly every six weeks to discuss interest rates so don’t gamble too much longer!

Let us at Ocean Communities FCU help you see if homeownership is right for you and take advantage of great rates while you still can. If you currently own a home, it is a great time to restructure your balance and pay back less interest- who doesn’t like to save money?

*The Federal Funds Rate is the interest rate in which depository institutions lend balances to other institutions overnight or basically the rate in which depository institutions charge each other for loans.

　

　

What you need to know about rate locks

Generally, two key questions should come to mind when speaking with a Loan Officer about a rate lock:

1. When can I lock my rate?
2. Does it cost money to lock my rate?

Rates are still at historic lows, but have become increasingly volatile with the global market challenges affecting our own stock market. It is important to be comfortable with a payment and to lock in your rate when you are able to. Who wants the unpleasant surprise that rates have increased, leading to an increase in your monthly payments. A rate lock is a commitment between you and the lender that basically puts funds on hold until the loan officer has all the paperwork necessary to close on your loan. A conventional rate lock generally lasts for 45 days. If you are refinancing a current mortgage, access to lock you rate is usually given at the time of the initial application approval. Yet if you are buying a home, this access is not granted until you have fully executed a Purchase and Sale Agreement and have signed your Intent to Proceed Disclosure.

Costs to lock your rate will vary, so a great question to ask upfront is, "How much will it cost to lock my interest rate?". Rate locks do cost money, as this is a reservation of federal funds that guarantees your loan rate. Costs can either be fixed or a percentage of the loan amount. At Ocean Communities FCU, we absorb the cost to lock your rate as long as you close your loan with us. This benefit and savings is truly appreciated by our members. If , however, you lock your rate with Ocean, but then choose to do business with and lock your rate with a new lender, Ocean will pass along the fee that it was charged for reserving the federal funds at the time of the rate lock. This fee can vary, so it is good to ask before you act.

LOAN ALTERNATIVES FOR FHA

The Federal Housing Administration (FHA) has been around since 1934 as part of the National Housing Act, and has provided many people the opportunity to own a home with little down payment.  The minimum down payment required by FHA today is 3.5% of the sale price, a very affordable avenue to any borrower. 

Part of the expenses of receiving a loan from FHA is insurance to cover the loan amount (not homeowners insurance).  FHA insurance payments include two parts: an upfront mortgage insurance premium (UFMIP) or one-time payment and “annual mortgage insurance premium” which you pay every month.

On April 18^th 2011, FHA will be increasing its annual mortgage insurance premiums for new loans submitted on and after that date.  The Up Front Mortgage Insurance Premium (UFMIP) of 1% of the loan amount (collected at loan closing) will still remain unchanged.

Ocean Communities is very proud to be able to offer such a great program that has helped so many over the years, but to assist with the rising cost of funds, PLEASE, make sure you know about our CU Promise 97 Program.

CU Promise 97 has features truly designed to help Ocean Communities FCU borrowers save those hard earned pennies.  With CU Promise 97, we require just 3% down payment, and there is NO Up Front Mortgage Insurance Premium (UFMIP)!  The monthly or annual mortgage insurance premium (which is needed because you are financing over 80% of the value of the home) is stable.

To show you how much the CU Promise Program could save you compared to FHA let’s look at the following scenario:

Purchase Price of a home at $200,000:

FHA – 3.5% down Payment ($7,000) + UFMIP of 1% ($2000) = $9000

CU Promise 97 – 3% Down Payment = $6000

CU Promise 97 would save our borrower $3000.

(Keep in mind there are additional closing costs with both scenarios, however, I did want to compare the area where a lot of the down payment and costs are derived from between the two types of loans.)

How much is too much house?

With the amount of inventory still increasing, there are a lot of homes on the market to choose from.  Buying a home is very exciting, but don’t get caught up in the game of extra amenities that have a higher sale price.

Generally speaking, most home buyers secure a 30-year note when obtaining financing.  You have to agree, 30 years is a long time, so also visualize that there is enough time to add amenities as years go on and not get tied down with a large payment for amenities you “have to have now.”  Be patient.  Talk with one of Ocean Communities staff members to discuss a Savings Plan designed for your future needs.

A tip for your home buying experience would be to review what you feel you can afford.  Because you may be “preapproved” for a certain amount, doesn’t mean that is what is best for you – this is something you will need to decide after you take a close look at your budget.

Lenders will look at your housing ratio as a factor on whether or not a loan amount may or may not be right for you.  Your housing ratio is the ratio between your proposed housing payment (principal, interest, taxes, and insurance) and your gross monthly income.  (Example: $1500 housing payment / $5000 gross income = 30% housing ratio)  Generally this ratio is desired to be around 29%, but can be higher and still get approved.

Keep in mind that you don’t take home gross pay; you take home net pay, which is the pay after taxes are taken out.  So technically, the ratio is higher when you are comparing the actual money you take home each week versus the monthly housing payment that will be yours for the next 30 years.  Homeowners will also face utility bills, home maintenance, etc. to keep up with for the time you own your home.  A lender doesn’t calculate utilities, maintenance, or items like that when approving you for a loan, so it doesn’t hurt to complete your own analysis of what you can afford!

Safer mortgage process with the SAFE Act

Since 2007, mortgage lending has evolved with necessary regulatory changes to protect both consumers and lenders.  There is a new change in place that will require mortgage originators to have more training.  These changes balance the educational requirements for mortgage originators, which ensure the consumer is speaking with someone who understands loan programs, lending guidelines, and so on.

What is a Mortgage Loan Originator?

For the purposes of the SAFE Act (see below), a mortgage loan originator (MLO) is defined as:

An individual who takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan for compensation or gain. An individual real estate licensee acting within the meaning of Section 10131 (d) or Section 10131.1(b)(1)(c) of the Business and Professions Code (B&P) is a mortgage loan originator with respect to activities involving residential mortgage loans.

In a layperson’s terms, an MLO is the person or institution you work with to get your mortgage financing, such as a mortgage broker or a mortgage banker.

How is the consumer protected?

Consumer protection is a very important aspect to the mortgage originating process.  Ocean Communities FCU and its MLO provide adequate time to make sure you are educated about the products you might qualify for, and how each of them may impact you in their own way.  Generally speaking, most mortgage notes are for 30 years.  That is a long term commitment, so please take the time and ask questions, shy away from impulse decisions, and really think your options through.  Ocean Communities FCU wants what is right for you and your family.

The National Credit Union Administration (NCUA) regulates Credit Unions, and recently the NCUA has adopted the SAFE Act of 2008, which requires all MLOs to be registered with the National Mortgage Licensing System (NMLS).  This system tracks the performance of all registered MLOs and make sure each complies with the regulations set forth in the SAFE Act.  Every loan application taken by a MLO will have to include the MLO’s unique identification number for NMLS tracking purposes.  All MLOs across the country will need to be registered with the NMLS by July 29, 2011.

If you are shopping for a loan after that date, do not hesitate to ask to see this unique identification number to assure yourself you are talking with someone that has the expertise to answer your mortgage questions.  A common place where the unique identification number will be found is on the MLO’s business card.