Home Expert Tips from Robin Vogel | Housing Market Truths and Myths

'You need a 20% down payment and stellar credit to obtain a home loan.'

This is a myth.

It's true that qualifying for a conventional home loan these days is much easier if a buyer has a twenty percent down payment. But did you know that FHA loans require only a 3.5% down payment? They now make up 25% of the home loan market, up from 2 percent of the market just a few years ago.

FHA loans are insured by the Federal Housing Authority, which protects lenders from losses. Unlike the sub-prime loans that caused so much havoc recently, FHA loans have relatively strict underwriting standards and require documentation of income. Credit score requirements are typically lower than standard conventional loans.

FHA loan limits vary, but are as high as $729,750 in some areas of the continental U.S., and even higher in places such as Hawaii and Guam.

Note: The upsurge in FHA financing means that selling or buying a condominium will be much easier if the complex is FHA-approved. Here's the link to check to see if a complex has FHA approval status.

'Homes that are 'under water' are short sales, or in foreclosure.'

This is a myth.

The term 'under water' refers to homes whose market value has fallen below the amount of the mortgage on the home. It does not have anything to do with whether or not the home is on the market, or if the owners are behind on mortgage payments.

Note: A short sale is the sale of a property in which the proceeds from the sale are less than the amount owed on the mortgage. In order for a short sale to go through the lender(s) must agree to accept less than the full loan amount.

'Jumbo loans are increasingly hard to obtain.'

This is true.

Loans that exceed $729,750 are non-conforming jumbo loans and can not be re-sold to Fannie Mae and Freddie Mac. The lack of a secondary market, combined with the fact that if the owner defaults the lender has a harder time selling a high end home, has resulted in extremely stringent requirements in order to qualify for a jumbo loan.

Conforming jumbo loans, which range from $417,000 to $729,750 depending on the home's location, are backed by Fannie Mae and Freddie Mac.

'Short sales in the neighborhood bring down home values.'

This is often true, but depends to some extent on how many sales in the neighborhood are not short sales.

Most appraisers understand that short sale listings are not representative of true market conditions because prospective buyers often shy away from them due to the long closing time and the uncertainty that lasts long into the closing process.

Whenever possible, appraisers will try to use sales that are not short sales or foreclosures when choosing comparables to determine a home's value. However, if there are very few non-distressed sales in a neighborhood or condominium complex the appraiser may have no choice.

The federal government is working on standards designed to streamline the short sale process and make those properties more attractive to home buyers.

'A seller who completes a short sale may be able to purchase another home right away.'

This is true. Here's a quote from the Fannie Mae FAQ sheet (opens as a pdf):

Question: "If a borrower has completed a short sale and was never delinquent on that mortgage and is now attempting to purchase a new primary residence, will Fannie Mae purchase the loan?"

Answer: "If the borrower is purchasing a new property and the previous mortgage history complies with our excessive prior mortgage delinquency policy and does not have one or more 60-, 90-, 120-, or 150-day delinquencies reported within the 12 months prior to the credit report date, the loan is eligible for delivery to Fannie Mae, provided the lender or servicer who completed the short sale has not entered into any agreement that obligates the borrower to repay any amounts associated with the short sale, including a deficiency judgment."

What if a short sale seller was late on mortgage payments?

Even short sale sellers who were delinquent on a mortgage have a relatively short wait. On June 25, 2008 Fannie Mae announced that the time period required to elapse after the completion of a short sale (defined as a pre-foreclosure sale) before borrowers can demonstrate that they have reestablished an acceptable credit history is two years. The time period for a foreclosure is five years.

See the guideline sheet here (opens as a pdf):
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf

'A short sale is a pre-foreclosure sale.'

This is not always true.

The terms 'short sale' and 'pre-foreclosure sale' have traditionally been used interchangeably, but these days more and more sellers are conducting short sales without falling behind on their mortgage payments.

For example, a person who is being transferred for work may need to sell even though the property value is less than the mortgage loan amount; or, sellers who are not yet delinquent may be able to show that they will soon not be able to meet mortgage payments.

The lender(s) always need to agree on the terms of a short sale, and home sellers often report receiving conflicting information depending on whom they end up speaking with at their lending institution.

Because the terms of a short sale are so important (for example, the specific wording used to describe the paid-off amount affects the seller's credit report, and terms also dictate whether or not the seller is obligated to repay any portion of the amount that was 'short') it's well worth getting professional guidance regarding any questions that arise during a short sale.

'There's plenty of time to take advantage of the First Time Home Buyer Tax Credit.'

This is a myth.

The federal government is giving a tax credit of up to $8,000 to first time home buyers who close on a home purchase on or before November 30, 2009. (See qualification guidelines here.) This may seem like a long time from now, but in reality we're getting down to the wire!

Most purchases take longer to close these days due to appraisers being busy, as well as the fact that many home purchases involve short sales that often require a lengthy process of approval by the lien holder(s).

In addition, this year Thanksgiving falls on November 26. Expect courthouses to be closed on Friday the 27th, which leaves Monday the 30th as the last day after November 25 when home purchases can close and still qualify for the tax credit. Can you imagine how many people will be holding their breath, hoping their closing goes through on that day? It's smart to shoot for a closing in early November, which means starting the home search now.

Do you have questions about any of these tips, or would you like a recommendation to a trusted service provider? Click "Reply" to this email, or call me directly - I'm happy to provide you with any information you need!

* What the lawyers make us say... This information is not presented as professional legal or financial advice, and is deemed reliable but is not guaranteed. Please consult with a qualified professional regarding any decisions involving these topics.