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Virginia Passes a First Time Home Buyers Law

In an effort to promote a full housing market recovery, some states are getting creative. Low interest rates have helped but not nearly to the degree that is needed for the housing market to be healthy. The Virginia legislature recently worked with the Virginia Association of Realtors on a new law that would incentivize first time home buyers to save for, and purchase a new home. This new law should help both the local housing market and the local banking industry.

Virginia residents that want to save money to buy a home can now receive additional benefits for doing so. Per the new law, anyone that invests up to $50,000 in a financial institution can call those funds a first-time home buyer savings plan. The term invest is used very loosely as it applies to funds that are put into a savings account, mutual funds, brokerage account, or most other financial accounts including stocks. The funds can then grow tax free, with a cap of $150,000. The funds can then be used for closing cost, lender fees, or anything else that appears on the closing statement. The goal is to make it easier for people to save for a new home and this in essence keeps more money in the hands of buyers, rather than going back to the government in the form of tax payments.

In order to qualify, a Virginia resident needs to be a first time home buyer. If they already own a home, they would not meet the standards necessary for growing the funds tax free. If a buyer was given a home and did not obtain a mortgage for it, they may still be eligible for the program.

This new law also helps first time home buyers that are planning on using gift funds for their down payment. Family members that want to help can put money into a savings or investment account, label it a first-time home buyer savings plan and use the interest or dividends to go towards closing cost and other fees on behalf of the first time home buyer. The caveat is that the funds have to be used for the first time home buyer in the future. This is an excellent way for families to get involved while growing their funds and obtaining tax advantages. By passing a law that encourages individuals and their families to grow funds tax free, Virginia lawmakers are hoping to strengthen the housing market and local mortgage industry. Delegate Tag Greason sponsored the bill saying, “By supporting this plan, Virginia re-enforces the commitment we have to our younger citizens, our families, and the overall recovery of the housing market.”

It will be interesting to watch how well the new program works and how many people use the first-time homebuyer savings plans over the next couple of years. Virginia is one of several states that are trying to strengthen its mortgage industry through creative financing programs, tax breaks, and other government programs. To learn what is available near you, contact your mortgage lender. They are the most knowledgeable resource for local and national mortgage loan programs and can tell you which ones you qualify for.

When to Use a Home Equity Line of Credit

With more Americans slowly building up equity in their homes, home equity lines of credit are beginning to look more appealing as a loan option.

Home equity lines of credit (HELOCs) work much like a credit card. The borrower is allowed to take out a certain amount and as the principal of the loan is paid back that amount of credit becomes available for use once more. Suppose, for example, that you take out a HELOC for $5000.00. If you take out $3000 and pay back $2000 then you still have an available $4000 worth of credit.

What You Should Use a HELOC For

HELOCs are like any other type of loan in that they will eventually have to be paid back. The interest rate on the loan is usually variable meaning that it can fluctuate with market conditions. Keep in mind that there is no way to predict when the interest rate on the loan may go up.

Accordingly, the most financially beneficial way to use a HELOC is to take money out and then immediately pay it back before an interest charge can be incurred. This will not only build up your credit over time, it will save you from potentially paying thousands of dollars in interest cost.

Ideally, the majority of the purchases that you make with money from a HELOC should improve your financial standing. In other words, you can ask yourself whether a certain purchase is likely to make you better or worse off financially. Items such as work tools or cars are often necessary to get by and do one’s job. These sorts of things will eventually need to bought one way or another and could thus broadly fall into a category we’ll call ‘necessary expenses.’

What You Probably Shouldn’t Use A HELOC For

Necessary expenses can improve your standing financially and help you get by in order to make even more money. Unnecessary expenses, by contrast, can eat away at your savings and make it more likely that you will not be able to pay back all of your debt. Using a HELOC to fund the downpayment on luxury cars or designer clothing can be problematic. Living above your means will eventually catch up with you.

There will be times in your life when you’ll need emergency funds in order to keep going. This might be medical bills or payments to fix a car that isn’t working. In one way or another, you’ll eventually need money to get through some sort of emergency. And the more debt that you take on the harder it will be to save in the long run.

In addition, using a HELOC to fund unnecessary items can be expensive. The interest rate on HELOC can vary and even making the minimum payments can get to be overwhelming on a sufficiently large HELOC. Not only will it likely be expensive to make these payments over time, it will also hurt your credit score. This affects your ability to get new loans and can make the entire process of borrowing more expensive in the future.

FHA Streamline Refinances Can Lower Your Monthly Mortgage Payment

The FHA has made it easy to reduce your mortgage interest rate and lower your monthly mortgage payment using an FHA Streamline Refinance program. This loan program is designed for homeowners with an existing FHA mortgage loan that is in good standing. Since the FHA already owns the mortgage loan, the process is simple and faster than a traditional refinance.

Call an FHA approved mortgage lender to get started. Only certain mortgage bankers are able to issue FHA loans so ask this question first, before completing the application. During the application process, they will ask the standard questions like how long you have lived in your home, where you work, how much money you make, and what assets you have. This information is all documented on the loan application but since it is a streamline refinance, the information is rarely verified. This makes it possible for people to lower their interest rate without worrying about employment or income verification. As an added benefit, credit is also not a factor in whether or not you can obtain the refinance. The underwriter will look to see if you are making your mortgage payments on time and use that as a determining factor as to whether or not you are likely to continue making payments on time in the future.

The FHA Streamline Refinance loan program is essentially a no credit, no asset, no income, and no employment loan because these aspects are not verified. If you have an existing FHA loan and have been making payments on time, the FHA believes that you will increase your ability to make on time mortgage payments by reducing the interest rate. This is a logical approach to making homeownership affordable. If you or your spouse has had their hours cut back at work or you recently had a credit issue, this is the best option for lowering your mortgage interest rate.
Many homeowners are still concerned about the value of their home and how it will turn out in an appraisal. Home values have been increasing over the past two years, but not enough to give everyone positive equity again. The FHA Streamline Refinance does not require an appraisal, so it doesn’t matter if you are upside down in your home. This is a straight interest rate reduction loan, so the value of the home doesn’t impact the process. Not obtaining an appraisal also saves homeowner’s time and money throughout the refinance process.

In order to use this program, you must be interested in simply lowering your interest rate or switching from an adjustable rate mortgage (ARM) to a fixed rate loan. The FHA needs to see that there is a clear benefit to refinancing. If you are looking to obtain cash out, you will not qualify for a streamline refinance. You can, however, refinance your existing FHA mortgage then apply for a home equity loan or line of credit at a later date. To find out exactly how much you can save, contact your mortgage banker today.

Preparing to Buy Your First Home

Homeownership isn’t always within immediate reach for a number of different people.

But there are steps that a person can take to help make sure that when the time comes, they’ll be better prepared to purchase their first home. Knowing what to work towards can be half of the journey when it comes to owning a house. If you aren’t likely to buy a home this year but are working towards buying a home sometime in the future, here are few things you’ll want to know.

1. Learn How to Budget

Learning how to manage your money is the first step you’ll need to make if you’re thinking about buying a home. Some people can do this very easily. Other people might only learn how to budget after they’ve gotten into financial difficulty. Whether you’re a millionaire or a recent college graduate who just started a new job, having good skills with money is important. Budgeting requires a little bit of knowledge and a good amount of discipline.

Figure out how much you’ll be able to spend on housing after all of your other expenses are taken care of. Also consider any recurring debts that you may have like car payments or student loans. If you’re having a difficult time making enough to support your current financial needs, then homeownership is likely still a ways off. But that doesn’t mean that the same principles won’t apply when you are making more money.

2. Save For A Down Payment

Saving enough money for a down payment is often one of the most difficult parts of owning a home. Even if you are heavily indebted, now is always a good time to start saving. Whether you’re taking out a conventional loan or a loan that’s backed by the federal government, the amount of money necessary for the down payment is likely to be quite large.
Suppose, for example, you’re hoping to own a home one day that’s valued at just $200,000. If you want to be able to able to afford the down payment with an FHA loan, then you’ll need to put around 3.5% down. For a $200,000 loan that’s $7000. With the right budgeting skills and discipline saving up that much money isn’t unrealistic. Of course, how long it will take to save that much will vary from person to person.

3. Monitor Your Credit Score

Your credit score is one of the main determining factors in not only whether you will qualify for a home loan, but also the terms and conditions of the loan that you get. No matter where you are currently with your credit, there’s always room to improve. As long as you’ve got a good budget in place, then you can almost guarantee that your credit will improve with time. Work on paying down the biggest debts that you have and periodically check your credit score for mistake.

So, in summary, learn to how budget and plan how much you can spend on housing. Once you have a budget in place, begin saving for the down payment on the home you want to buy. If you manage to do these three things, then you’ll be well on your way to owning your first home

Home Appreciation Slowed in 2014

The housing market recovery is far from over. The Case-Shiller Index published in June showed that home value appreciation slowed in Q1 of 2014 to a mere 0.02 percent as compared with 1 percent per month in 2013. Home price appreciation has been in the double digits for the past two years which have helped existing homeowners to recover some of their lost equity while simultaneously making it more difficult for first-time home buyers to afford to purchase.

Some major metropolitan areas still saw significant increases in home value appreciation including Dallas, Denver, Chicago, and San Francisco, though still below the levels they were experiencing prior to the housing crisis. The growth in some of the larger cities may be attributed to access to employment. Smaller cities throughout the country have experienced little to no appreciation, with many mortgage professionals believing values peaked in the summer of 2013.

One of the reasons that home values have plateaued or stabilized is that many of the banks have sold off the majority of their foreclosure or REO properties. When there was a high percentage of foreclosures, it made it difficult for families to sell their homes at a competitive price. This inventory had to be flushed in order for home values to reach stabilized levels. As it did, many families were able to start selling their homes last summer for their actual value instead of discounted prices. With the economic growth being poor, income and job levels decreasing, there are fewer buyers with the ability to purchase a home which further contributes to home prices standing still. Without buyers competing for properties, there is no reason for home prices to go up.

Fortunately, those that do want to purchase a home can benefit from low mortgage interest rates and stable home prices. This allows buyers to find a home that is perfect for their needs without having a high mortgage payment. In fact, with home prices stabilizing and 30 year interest rates in the low 4s, many home buyers will pay less after purchasing than they were on their monthly rent payment. This is a fantastic opportunity for people to get out of their rental.

There are a variety of mortgage loan programs that are ideal for buyers with little to no down payment. The VA offers zero down loans for veterans at a competitive interest rate. Additionally, if a veteran is disabled the VA will also waive the funding fee, which reduces the closing cost. The FHA is another option for buyers. They will finance up to 97 percent of the purchase price, requiring a tiny down payment. Depending on the size of the home, the combination of an annual tax return and savings can be enough to get a buyer into a starter home or condo. Gift funds are another option for families that want to take advantage of stable home prices and low interest rates, but simply don’t have the savings for even a small down payment. When a family member steps in to pay the down payment, it is called gift funds. To learn more about this or other options for home buyers, call your local mortgage lender today. Act now, before home values start to rise again.

What to Avoid When Buying a House for the First Time

Buying a home is often when of the most difficult tasks that a person can undertake. It can very rewarding, but it can also be the source of a lot of headache if the right steps are not taken. These are just a few of the things that you will want to avoid if you’re thinking about purchasing a house this year.

1. Not Making a Budget

A housing budget is important for at least two different reasons. It will help you avoid wasting your own time and the time of other people buy looking at houses that are simply out of your price range. Figure out how much house you can actually afford to buy in order to make the experience more streamlined.

Second, failing to establish a housing budget could lead to numerous financial difficulties down the road. Consider what other expenses you will have to make besides housing. Food, clothing, recurring debts like student loans, car payments and credit card bills can all take a huge chunk out of any monthly budget.

If you don’t have enough money to pay for everything or are just barely getting buy something will eventually have to give. Either there won’t be enough for the mortgage, debts or some other important obligation. Even if you can just afford your prospective housing arrangement, that’s not really where you want to be. Unexpected expenses like medical bills and car repairs can throw off a budget that’s not flexible enough.

2. Failing to check your credit scores

Your credit scores are one of the main factors in determining whether you’ll be able to qualify for a loan and the terms that you’ll be able to get. The better the score, the better rate you’ll be able to afford and the more money you’ll be able to save. Even if you think that you have excellent credit, it’s worth getting your credit report and checking for errors just in case. Mistakes happen and when they occur on your credit report, they can cost you money.

3. Failing to consider all of your mortgage options

There are more than just one ways one can go about purchasing a home. There are FHA loans, conventional loans and home VA loans specifically designed for members of the armed services. FHA loans generally allow you to qualify for a loan with lower credit scores and low down payments. This has made them very attractive for first time buyers.

Conventional loans usually require higher down payments, but they come with more generous mortgage rate terms. On top of this, there are a number of different options when it comes to financing a loan. The buyer is free to choose from fixed-rate mortgages and adjustable-rate mortgages. Ultimately, all of the different options are a different mix of risk, savings potential and financial security.

The option that you choose will be determined by your own financial needs. For example, do your prefer to have more money now or to have more in savings for the future. Think about these types when determining which path you will take.

How to Buy a House this Summer

If you are a first time home buyer, or someone looking to purchase a larger home, summer is an excellent time to move. The kids are out of school, the weather is great, and the flowers are in bloom so you will be able to look at neighborhoods in their full glory and move without juggling school schedules. Buying a home is a major life event and your mortgage lender can help you by making sure you are pre-approved for a home that fits within your budget.

What is the Difference between Pre-Qualified and Pre-Approved?

Before you start looking at houses,it is important to become pre-approved for a home loan. It is easy to become confused about the difference between being pre-qualified and pre-approved. Many mortgage bankers will send out letters stating that someone is “pre-qualified”. That typically means that based on publicly available data, you should qualify for a certain type of loan. These letters are sent out without a mortgage lender reviewing your credit report, income status, or assets. It is not a firm approval.

You need to get “pre-approved”. In order to start the process, call your local mortgage lender and let them know that you want to purchase a home. They will ask you questions, take a full application, pull your credit and ask for your income documents. After reviewing the information, your mortgage lender can let you know how much you are pre-approved for and issue you a letter to show your real estate agent.When you put an offer in on a house, the real estate agent may include your pre-approval letter to show the seller that you will be able to get a home loan.

Down Payment

There are several types of mortgage loans that allow you to buy a home with little or no down payment. First time home buyers may find this particularly useful. Even those that are selling a home may want to keep the proceeds for other things like paying off debt or taking a long vacation. Your mortgage lender can tell you which types of loans you are qualified for. If you want to make a low down payment, ask the lender about these loans:

• FHA Mortgage Loan – The Federal Housing Administration (FHA) helps to make homeownership affordable for millions of low income and middle class families. You can purchase a home using an FHA loan for as little as 3 percent down.

• VA Mortgage Loan – If you or your spouse has served in the Armed Forces, you may qualify for a VA mortgage loan. VA home loans do not have a down payment requirement, making it extremely easy for veterans to purchase a home. VA purchase loans can be used on single family up to four unit homes, with the requirement that the property is owner occupied.

• Conventional Loans – Some banks will finance a higher loan to value, based on the community loan programs that they offer. These typically come with a requirement to pay private mortgage insurance and a slightly higher interest rate than if you put 20 percent down.

Your mortgage lender can walk you through the process of becoming pre-approved, tell you how much money you will need to put down, and what your final payment will be. By working with an experienced mortgage banker and realtor, you can get out of your rental and into your own home this summer.

Home Sales Stronger Than Expected for April

Sales of new homes are up 6.4% for the month of April according to new data released by the census bureau.

It was the only increase in home sales since January and has generated speculation that the housing market may be picking up steam once more heading into spring. Along with the increase in sales of new homes, the sales of previously owned homes rose at a rate of 1.3%.

Why Sales Have Picked Up After Falling Off

To give some perspective, this month’s increase in home sales is still 4.2% below where the market was in April of 2013. Back in 2013, rates were still relatively low and there was a flood of new buyers entering into the market before they shot up even further.

But one year can make a lot difference. As mortgage rates started picking up, buyers began to slow down with the purchase of new homes. At the same time home prices were also raising, which had the effect of shutting a lot of potential buyers out of the market. This was especially true with first time buyers.

Buyers have been consistently struggling to afford a new home after last year’s price increases. However, as mortgage rates have begun to stabilize in the past few months, more buyers started to enter into the market.

What’s interesting is how the market has shifted in different regions. Not all places in the country are experiencing an increase in sales. The new sales are being driven largely in the Midwest where buyers are purchasing homes 47.4% faster now than in April of 2013. In the Northeast, sales dropped by 26.7%. Sales in the South are up by a meager 1.3%.

Purchasing a Home in Today’s Market

There are a number of good reasons why now may be better than latter when it comes to getting a new home. Homes prices are still steadily increasing, meaning that even more buyers will be priced out of the market. Even for those buyers who are still able to afford a home, they may eventually no longer able to afford the home that they were hoping for.

Mortgage rate stabilization provides another strong incentive for prospective buyers. Rates will not likely dip back to the historic lows that they were at near the end of 2012. However, they are still relatively very low compared to where they were prior to the financial crisis. This is incidentally the same reason why it would be advantageous for many homeowners to refinance to a new lower rate if they have not done so recently.

Whether you’re buying a house or refinancing, the temporary ease in mortgage rate hikes could potentially help save you a lot of money. Just fractions of a percentage with mortgage rates can mean the difference between saving and paying tens of thousands of extra dollars on your home. So, while rates might not likely be heading back down, there is still ample opportunity to save money with a home loan in today’s market as opposed to waiting several months down the road.