By MARYANN HAGGERTY
Published in the NY Times: June 23, 2011
As the economy and real estate market continue to struggle, millions of Americans have lost their homes through foreclosure, short sale (when a property is sold for less than is owed) or a deed in lieu of foreclosure (when the bank takes ownership without foreclosure).
Even if you think you never want to own a home again, clean credit is important. Bad credit can make it more expensive to rent. In some fields, especially financial services, it can make it difficult to find or keep a job.
How quickly your credit score improves depends in part on how the problem is reported, said Sarah Davies, a senior vice president of VantageScore in Stamford, Conn., a credit-scoring company that competes with FICO, the dominant scoring system.
In a short sale where the balance is forgiven and no deficiency is recorded in public records, recovery can be quick. “Simply paying all your debts on time could bring your score up to a reasonable range in nine months,” Ms. Davies said. “Reasonable” may not qualify you for a mortgage, but it will help in other situations.
A foreclosure or bankruptcy can weigh you down for years. FICO has found that it takes three years for a borrower to pull a score back up to a fair-to-middling 680 after a foreclosure, according to Joanne Gaskin, a company director. A borrower who started out with a near-perfect 780 score would take about seven years to climb all the way back.
But if someone has gone through foreclosure and still has a mountain of debt and not enough income, bankruptcy is worth considering, said Tracy Becker, the founder of North Shore Advisory, a credit-restoration company based in Tarrytown, N.Y. Sure, it will be another hard blow to your credit rating — but your credit most likely is already “wrecked,” at least for now, she said.Bankruptcy can wipe out some debt. “The choices you make for the future about your financial options should be based on how bad your credit is,” Ms. Becker said. With one 30-day-late payment, for instance, “don’t assume your credit is ruined forever,” she said. It’s easier to recover from that than it would be to pull back from a string of late payments.
And what about a future mortgage? Fannie Mae, Freddie Mac and the Federal Housing Administration set guidelines for how long a borrower must wait after a “significant derogatory event.”
There are plenty of asterisks and conditions. But to generalize, the wait is longest after a foreclosure. Extenuating circumstances like a job loss, illness or divorce reduce the wait.
With such circumstances, Fannie and Freddie specify a two-year wait after a short sale, deed in lieu, or discharge or dismissal of bankruptcy, and three years after foreclosure. Without extenuating circumstances, waits can extend to four years after bankruptcy and seven years after foreclosure.
“The key is to avoid the foreclosure,” said Andrew Wilson, a spokesman for Fannie Mae. “That is what will help you be eligible for the shorter period.”
As for F.H.A.-insured loans, they are available three years after a foreclosure, assuming perfect credit afterward, and two years after a bankruptcy is discharged. After a short sale, there’s a three-year wait if the borrower is in default at the time of the sale and there are no extenuating circumstances. If the borrower was on time with all payments for 12 months before the sale, there is no wait specified, meaning that an F.H.A. loan might be available immediately. Among the conditions: A loan isn’t available if the short sale was to “take advantage of declining market conditions,” according to the F.H.A. Home Loan Handbook for lenders.
One caveat: All of this assumes you have income to pay off debts and stay afloat. It’s likely to be a long time before the mortgage market returns to an anyone-can-borrow-anything way of thinking.
One of the most important factors in qualifying for an FHA home loan is the debt-to-income ratio. In this post I will explain this so you can be aware of your own debt-to-income ratio and make sure it is where you need to qualify for an FHA loan.
There are 2 different important ratios FHA underwriters look at when approving a FHA loan. The first is your housing ratio or “front ratio”. This is simply taking your TOTAL housing payment (monthly mortgage payment + monthly mortgage insurance + property taxes divided by 12 + homeowners insurance divided by 12 + monthly condo HOA if you have it) as a percentage as your total gross (before tax) monthly income. So if your total housing payment is $2,000 per month and your gross monthly income is $6,0000, $2,000/$6,000=33%. So your housing ratio is 33%.
The more important ratio looked at for qualification for an FHA loan is your “back-end ratio”. This is your total housing payment + all the total of all other monthly payments that show up on your credit as a percentage of your gross income. So if you have a housing payment of $2,000 + a $200 auto loan payment + $100 student loan payment + $50 minimum monthly credit card payment, your total debt for the purposes of the back-end ratio would be $2,350. So take $2,350 and divide it by $6,000 gross income and you have a 39% back-end ratio. Items such as utilities, car insurance, cell phone payment, etc… are NOT counted in this ratio. It is only your total housing payment + items that appear on your credit (most commonly auto loans, student loans and credit cards, personal loans).
So in this case a 33% front ratio and a 39% back ratio would qualify for an FHA home loan as long as the borrower meets all of the other guidelines (job history, credit score). The maximum ratios can be much lower for what is called a “manual underwrite”. A manual underwrite is generally done only if you have below a 580 credit score. In this case you have to start out with a 31% maximum housing ratio and a 43% back ratio. The underwriter does have wiggle room if you have compensating factors.
But if you have average to good credit, the maximum ratios can be much higher than 31/43 above. Generally you can get up to 50% back-end ratio and possibly above if you have other compensating factors (solid credit, cash reserves). But regardless of the maximum ratios, the most important thing for your as a homeowner is only taking on a housing payment that you feel you can comfortably afford.
Some tips to keep in mind if you feel like your debt-to-income ratio for a FHA home loan is too high for the house you want to buy or on the borderline:
SEATTLE, May 3, 2011 /PRNewswire/ — As the housing market continues to struggle with high inventory and a lack of demand, home buyers appear ill-prepared to take out a mortgage, answering basic questions about mortgage information wrong nearly half (46 percent) of the time (i) according to a Zillow Mortgage Marketplace survey(ii). In fact, 44 percent admitted they are not confident in their knowledge of mortgages or the mortgage process. Zillow® Mortgage Marketplace, with Ipsos, surveyed prospective home buyers, asking them to gauge their own knowledge of mortgages, and asking basic questions about mortgage facts.
For example, more than half (57 percent) of prospective home buyers who were polled do not understand how adjustable rate mortgages (ARMs) work. When asked if interest rates on 5/1 ARMs always reset higher after five years, the majority of home buyers answered yes. In fact, the interest rate will adjust to the prevailing rate after five years, even if rates have declined(iii). Currently, many borrowers whose ARMs have recently reset have lower interest rates than they did when they took out the loan.
Additionally, one-third (34 percent) of the respondents who are prospective home buyers do not understand that lender fees are negotiable and that they vary by lender. They believe lenders are required by law to charge the same fees for credit reports and appraisals, when in fact home buyers can save money by shopping for the lowest fees.
“Most people wouldn’t jump out of a plane if they didn’t know how to use a parachute, yet each year many buyers commit to the largest loan they will take out in their lifetimes without understanding essential information about mortgages,” said Zillow Mortgage Marketplace Director, Erin Lantz. “By simply spending a few hours researching how a mortgage works, and by shopping around for the most competitive rates and fees, buyers can save a lot of money.”
Additional Survey Findings
Interactive Online Quiz and Resources Available
It’s what matters most to buyers and sellers in today’s real estate market – working with a professional real estate agent who has the experience to get the job done. And statistics show, that is a RE/MAX agent. For the 13th consecutive year, nobody sells more real estate than RE/MAX.
And, RE/MAX agents continue to be the most productive sales force in real estate with the highest average transaction sides of the national brands. According to statistics reported by the major national brands cited in the 2011 RE/MAX versus the Industry report, RE/MAX agents in the U.S. averaged 13.1 transaction sides last year, nearly two times the next closest competitor, Coldwell Banker at 7.1
“Our focus is on being the best sales force, not the biggest, and we continue to hit that mark,” said RE/MAX Chairman and Co-Founder Dave Liniger. “What we are is the home of top producers – experienced professionals with a deep belief in themselves, a higher level of training, an unmatched work ethic, and a serious approach to their careers. That’s our competitive advantage, and our agents have kept RE/MAX on top, in the ways that matter most, and that’s why more consumers have turned to RE/MAX for more than a decade.”
Buyers on the fence:
This could have dramatic implications for you!
Lock in your rate in the next two months!
FROM NPR: Since the housing bubble collapsed, it's been harder for many Americans to qualify for a home loan. But soon, it might get even more difficult.
The government is reshaping the mortgage market. And right now there is strong political support for requiring much bigger down payments for most home loans. Powerful congressional Democrats and Republicans support the move, as does the Obama administration.
In a matter of weeks, federal regulators are expected to unveil new rules for home loans. The buzz is that the rules could translate into mandatory 10 percent or even 20 percent down payments for most new loans in the U.S., which would be a significant change.
A Mandatory Down Payment
For the average-priced home that would mean saving $18,000 to $36,000 for a down payment. Some experts think that's a good idea.
Mother Nature put on quite a show this winter and some homes took a beating. Here are some things to look for this Spring and assess what damage may have been caused by the wind, rain and snow.
Curb Appeal. Check steps, decks and porches for wood rot and peeling paint. If the house is vacant, you may want to use some elbow grease or invest in fresh paint on the porch and a power wash to get rid of the winter grime and dust.
Leak Alert. Check beneath the house to see if there is any accumulated water. Even if it is raining outside, it should be dry underneath the home. If not, first eliminate the possibility of leaks originating from inside the house by checking the underside of the floor for dripping water or water stains.
If an inside leak is not to blame, look next for seepage from outside the house. Determine the source to prevent any future damage.
Foundation for the future. Inspect the area where the home’s foundation meets the ground for spots where the earth slopes toward the house. Fix any sloping earth so that it directs water away from the house.
Trim trees and shrubs to keep them from touching the house and channeling water down the walls. Also, remove ladders, wheelbarrows and other equipment stacked against the outside of the home. Install extensions on gutter downspouts to keep water far from the structure.Many purchasers have been sitting on the sidelines waiting for home prices to hit bottom. They want to guarantee that they are purchasing at the best possible price. Like them, we also believe that prices still have some room to fall in most markets. However, we disagree that waiting is a good financial decision. The buyer should not be concerned about housing prices.They should be concerned about cost.
The cost of a house is made up of the price AND THE INTEREST RATE they will be paying. Two different pieces of news released yesterday highlight this point.The National Association of Realtors (NAR) released their 4th quarter housing research report. In the release, they reported that home sales rose 15.4% in the 4th quarter over the 3rd quarter. They also showed that prices remained stable during the year:
The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009.
A buyer who delayed a purchase might find solace in the fact that prices have not increased. However, the other news released yesterday paints a different picture.
INTEREST RATES
The Primary Mortgage Market Survey was released by Freddie Mac which showed that the 30 year fixed rate mortgage was at 5.05%. Frank Nothaft, vice president and chief economist of Freddie Mac said:
“Long-term bond yields jumped on positive economic data reports, which placed upward pressure on mortgage rates this week…As a result, interest rates on a 30-year fixed-rate mortgage rose to the highest level since the last week in April 2010.”
So prices have remained stable but interest rates have risen dramatically in the last 90 days. What does that mean to a buyer looking to purchase a home this year?
The price is the same. It just costs more.
Let’s show you what the news means:
By sitting on the sidelines for the last 90 days a purchaser lost:
If you buy a $340,000 home, double all these numbers.
Even if prices fall another 10% this year, the cost of a home will increase if interest rates go up more than 1%. Buyers should not worry where prices are going. They should be concerned where costs will be later in the year.
It is an incredibly difficult situation both emotionally and financially when someone you love has become mentally incapacitated and the responsibility for them and their real property lands on you. I recently had a listing where I was dealing with this issue so I thought I would share some pointers.
People with Alzheimer’s disease, dementia, or other debilitating mental conditions do not have the legal capacity to handle transactions. With our society of people living longer, these issues are more and more common in real estate transactions.
If the legally incapacitated adult executed a Durable Power of Attorney while competent, then the designated Attorney in Fact may have the legal authority to sell or refinance property, and of course all proceeds will go to the actual owner.
Otherwise, the relatives or other representatives of the owner will be required to petition the Probate Court for a Guardianship:
1. Guardianship of the Person– a Guardian with the right to handle the everyday affairs of the incapacitated adult;
2. Guardian of the Property – a Guardian with the right to handle mortgage payments, taxes, insurance, and other management issues with property;
3. Guardian ad Litem – a Guardian appointed by the Judge of the Probate Court, sometimes an unrelated party or attorney (often used to protect the assets inherited by a minor child);
4. Guardian with Leave to Sell Specific Property – a Guardian with authority to sell property owned by a person lacking legal capacity. This process may require an appraisal, contract review, an arm’s length transaction affidavit, a draft HUD-1, and many of the components seen in a short sale.
- Large, level fenced yard with secure off-street parking
- Rocking chair front porch and huge back deck
- Gleaming wide-plank pine floors throughout & tons of natural light
- Open, flowing floor plan perfect for entertaining
- Chef's kitchen with granite, tons of storage, upgraded appliances, and a huge breakfast bar
- Spacious master suite with trey ceilings, private balcony, and custom walk-in closet
- Tons of wonderful architectural details make this home one-of-a-kind!
If you are like the small, but growing army of folks who have dumped their homes back on the banks in a short sale—and are feeling pretty good that you managed to get the bank to forgive all that debt you owed—stand-by! The IRS is about to dump an even bigger one on YOU!
Ever hear of a 1099-C? Not sure? Well, most people probably haven’t. But some of you will. Soon.
The 1099-C (pdf) is the form you should get for the total amount your lender lost on the deal for your house. And, guess what? The IRS has its own view on this: It considers this “loan forgiveness” as a source of taxable income for you.
That’s right. If you short sold on your house, you are more than likely to get a bill from the IRS to pay up taxes on the amount of the forgiven debt or else!
Come on, you didn’t really think it would be THAT easy? Did you?
Now, while I am not an accountant (I don’t even play one on TV)–and, DISCLAIMER ALERT!!! DISCLAIMER ALERT!!!, you SHOULD consult with one! I can tell you there are some handy but painful ways to avoid coughing up the money to the feds you saved on your short sale.
If you received an Annual Assessment Notice and would like to appeal the new value, no appeal form is necessary. Simply write a letter stating that you are appealing, and include in your letter the following information:
Homeowners may need to provide the Warranty Deed, proof of residence, social security numbers, driver’s license and car tag info.
***if you live in the part of City of Atlanta which is also in DeKalb, you must file in both Fulton and DeKalb Counties***
Fulton County – deadline is April 1, 2011 404-612-6440
http://www.fultonassessor.org/Forms/HtmlFrame.aspx?mode=content/Taxreliefinformation
DeKalb County – deadline is March 1, 2011 404-298-4000
http://web.co.dekalb.ga.us/taxcommissioner/homesteadgen.html#applications
Gwinnett County – deadline is March 1, 2011 770-822-8800
http://gwinnetttaxcommissioner.manatron.com/Tabs/Property/HomesteadExemption.aspx
Cobb County – deadline is April 1, 2011 770-528-8600
http://www.cobbtax.org/Forms/HtmlFrame.aspx?mode=content/Exemptions.htm&LMparent=189
Clayton County - deadline is April 1, 2011 770-477-3311
http://www.claytoncountyga.gov/departments/tax-assessor/residential-property.aspx
Cherokee County – deadline is April 1, 2011 678-493-6122
Henry County – deadline is April 1, 2011 770-288-8180
http://www.co.henry.ga.us/taxcommissioner/PropertyTaxExemptions.shtml
Forsyth County – deadline is April 1, 2011 770-781-2106
http://www.qpublic.net/ga/forsyth/faq.html
Douglas County – deadline is April 1, 2011 770-920-7272
http://www.douglastaxcommissioner.com/
Fayette County – deadline is April 1, 2011 770-461-3652
http://www.fayettecountytaxcomm.com/subpages/HOMESTEAd.asp
Paulding County – deadline is April 1, 2011 770-443-7606
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