What West Bank Home Buyers and Sellers Need to Know About the New FHA Guidelines

This week, David Stevens, the Federal Housing Administration (FHA) Commissioner, announced policy changes to how FHA loans will be handled later this year.  We don’t have specific dates or all of the fine print yet, but here is the gist of the changes:

The upfront Mortgage Insurance Premium (MIP) will be increased from 1.75% to 2.25% of the loan

This cost is typically rolled into a home buyer’s loan, increasing the monthly payment.  The additional half percent MIP charge will result in negligible changes in payment amounts for most borrowers.  This change is expected to go into effect in the spring.

New borrowers will now be required to have a minimum 580 FICO (credit) score in order to take advantage of the 3.5% down payment program

This is change is unlikely to impact very many buyers simply because the majority of lenders have been requiring a minimum 620 FICO for some time now.  If, however, a lender is making loans to borrowers with credit scores of less than 580, the down payment requirement will be increased to 10%.  These changes are expected to be put into place this summer.

A reduction in the allowable amount of seller assistance to FHA borrowers

Currently, the maximum seller contribution towards closing costs and pre-paids is capped by FHA at 6% of the purchase price.  The new guidelines will reduce this amount to 3% of the purchase price.  This change is also expected to be put into place this summer.

Of the three changes, the reduction in the amount of seller assistance is most likely to impact buyers in the New Orleans area.  FHA loans made up 43% of the single family home sales on the West Bank of New Orleans in 2009.  53% of the FHA borrowers received some type of seller assistance with their purchase.  Of buyers receiving seller contributions in 2009, a whopping 64% received in excess of 3%.

Now, this does not mean that none of the sales would have taken place under the new guidelines.  There were many that were just over the 3% threshold that I’m sure would have still closed if the new rules were in place.  However, there were a substantial number of buyers who appeared to get almost all of the money needed to close (except the down payment) in the form of seller assistance.  These are the buyers that may be pushed out of the market in 2010 as they will be forced to save longer and have more of their own cash invested in their home purchase.  Don’t get me wrong…I don’t think that having more of a financial stake in a home purchase is a bad thing, as it tends to result in buyers who are truly ready to be home owners.

What’s the possible impact on West Bank home sales?

For buyers, this means you will need more cash on hand for your FHA home purchase.  Not only do you need the 3.5% down payment, but the cap on seller contributions towards your closing costs and prepaids (taxes, hazard insurance, flood insurance, lender fees, etc) means that you must have a larger amount of money saved before attempting to purchase a home.  For some people, this will result in a longer waiting time until you can buy.

For sellers, this could possibly mean a decrease in the number of qualified buyers for your home. A smaller pool of buyers equates to a reduction in demand.  A reduction in demand usually equates to lower selling prices.

If you have been waiting to put your home on the market until later in 2010, my recommendation is to do it as soon as possible – before these changes go into effect, since we do not know what the fall out might be.  This advice only applies to those sellers that fall within the current FHA loan limits.

• For more details, read the entire HUD release here

As always, your lender is the best source of detailed mortgage advice for your particular situation.  If you need a referral to a local FHA lender, please contact the West Bank Living Team and we would be happy to help you.

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For more information about home buying or selling on the West Bank of New Orleans, or relocating to or from NAS JRB New Orleans, please contact the West Bank Living Team.

It would be our pleasure to have the opportunity to assist you with any of your real estate needs and have a little fun while doing it!

Buyer Etiquette: Dos and Don’ts When Touring Homes for Sale

I met with a seller this week who was upset.  Not with me, but with a family that had viewed their home with the kids in tow.  Apparently, during the showing no one was watching the 4 year old as she darted from room to room, touching and moving things all along the way.  The owners were forced into the role of babysitter to protect their belongings from sticky little fingers because neither the parents nor the agent was paying attention. 

Unfortunately, this happens all too often.

Before you begin your West Bank home search, here are a few dos and don’ts to remember when visiting:

DO

Try to schedule appointments ahead of time.  “Honey, stop the car!” usually doesn’t work.  As a matter of fact, I counsel all of my sellers to turn away people who just show up at the door, instructing them to call and schedule an appointment at a time that works for everyone.

Take off your shoes if they are wet or muddy.  I’ve been on the receiving end of the wrath of an owner who came home to mud tracked all across their freshly cleaned carpets.  If your shoes are wet or dirty, please take a moment and remove them before entering someone’s home, just as you would want them to do in yours.

Remember that you are a guest in someone’s home and respect their belongings. While they may have the most beautiful collection of ______ (whatever it is that caught your eye), take a look but don’t touch approach when touring.

Keep an eye on the kids.  Better yet, leave them at home if possible.  House hunting is pretty boring when you are a child and the temptation to play with toys or explore a new space is almost more than they can resist.

DON’T

Make yourself at home on the furniture.  It’s not included in the sale and some owners are funny about strangers coming in and lounging on the sofa that they painstakingly fluffed the pillows on before your visit.

Eat or drink while touring a home.  Leave the food and drinks in the car.  Spills happen and I really, really don’t want to be the one calling your agent to tell them they owe me for having the carpet or upholstery cleaned due to an accident.

Bring your pets with you to a showing.  If you can’t possibly travel without Fifi, please be prepared to leave her in the car while you look.  Not everyone is a pet lover and some folks are highly allergic to the hair and dander that is left behind.

Use the bathroom facilities without permission.  In some vacant homes, not all of the utilities may be on and the time to find that out that there is no running water is not after someone has already taken a potty break.

 

Related Articles:

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For more information about home buying or selling on the West Bank, or relocating to or from NAS JRB New Orleans, please contact the West Bank Living Team. It would be our pleasure to have the opportunity to assist you with any of your real estate needs and have a little fun while doing it!

Bond Money is Now Available for Jefferson Parish Home Buyers

Buying a home is exciting.  Getting a little help when buying is fantastic! Usually, parish bond money comes with a list of restrictions, but the most recent issue for Jefferson Parish home buyers is more flexible, allowing more people to get some assistance with purchasing a home in the community.

Here are the highlights of the program:

• 30 year fixed rate mortgage at 5.35%
• 4% assistance to the home buyer
• You do NOT need to be a first time home buyer to take advantage of the program
• FHA, VA and Rural Development loans all qualify

With only $25 million in loan proceeds available on a first come, first served basis, now is the time to take advantage of this program if you are considering purchasing a home in Gretna, Terrytown, Harvey LA, Marrero, Westwego, Avondale or Bridge City.  You are free to work with any of the approved lenders, who can provide more details about loan limits and income requirements and determine your eligibility.

Approved Lenders

Iberia Bank, Hancock Bank, Liberty Bank & Trust, Parish National Bank, Iberia Bank Mortgage Co., Whitney Bank, Eustis Mortgage, Regions Bank, Dryades Mortgage, Bank of America, Standard Mortgage, Wells Fargo Bank, IndyMac Bank, Bank of New Orleans, Deep South Mortgage Co., Gulf Coast Bank & Trust, Capital One Home Loans, NOLA Lending Group and Fidelity Homestead Savings Bank.

Already Approved?

Once approved, don’t waste any time finding your perfect home.  Contact the West Bank Living Team to start your home search today!

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For more information about home buying or selling on the West Bank, or relocating to or from NAS JRB New Orleans, please contact the West Bank Living Team.  It would be our pleasure to have the opportunity to assist you with any of your real estate needs and have a little fun while doing it!

Furnish That New House AFTER You Move In | Things Not to Do When Buying a Home

It’s a done deal.  You’ve spent time doing research about the West Bank real estate market.  You’ve found the right West Bank REALTOR.  You’ve negotiated the best possible price and terms on your new house and you are impatiently waiting to close and move in.

What do you do next?  Go shopping for furniture and curtains and towels and paint, right?  WRONG.

I know you are excited about the prospect of decorating your new home and making it reflect you, you, you.  But all of that shopping could backfire on you when your lender verifies your credit information before the closing.

Why would your lender check your credit again?

Well, before they are willing to finance your home purchase, your lender has gone to the trouble of making sure that you are gainfully employed, verified your income and that you can afford to make the monthly payments.  After all, they want to be repaid and the only way they can reasonably assume that will happen is to qualify you.  They use many different formulas for determining what type and how much of a mortgage you can afford, including what is called a debt to income ratio.  Basically, it’s a formula that calculates the maximum amount of monthly mortgage debt you are allowed to have in relation to your income.

From Wikipedia:

Two main kinds of DTI

The two main kinds of DTI are expressed as a pair using the notation x/y (for example, 28/36).

1. The first DTI, known as the front ratio, indicates the percentage of income that goes toward housing costs, which for renters is the rent amount and for homeowners is PITI (PITI includes mortgage principal and interest, mortgage insurance premium [when applicable], hazard insurance premium, property taxes, and homeowners’ association dues [when applicable]).
2. The second DTI, known as the back ratio, indicates the percentage of income that goes toward paying all recurring debt payments, including those covered by the first DTI, and other debts such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments, and legal judgments.^[1]

Example

In order to qualify for a mortgage for which the lender requires a debt-to-income ratio of 28/36:

• Yearly Gross Income = $45,000 / Divided by 12 = $3,750 per month income.
  • $3,750 Monthly Income x .28 = $1,050 allowed for housing expense.
  • $3,750 Monthly Income x .36 = $1,350 allowed for housing expense plus recurring debt.

Your lender calculates your debit to income when you apply for a loan, but what many people don’t realize is that most of them run an updated debit to income calculation in the days leading up to your closing.

Now, suppose you ran out and charged a new sofa here and some new linens there and ordered the new blinds from that cute shop around the corner.  If you were close to the maximum DTI allowed by your lender, you may have just disqualified yourself from buying the very home those new things were supposed to be used in.

To avoid any problems, it’s better to wait until you have the keys in your hand before you go on that new home shopping spree.  Even then, it’s smart to keep your monthly budget in mind.  No one wants to be house poor, spending all of their time working to pay a mortgage. 

Maybe Aunt Martha’s floral sofa will fit quite nicely against that wall after all.

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For more information about buying a home in New Orleans or on the West Bank, feel free to contact the West Bank Living Team.  We live, work and play here and would love to welcome you to our community.

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Historic Homes on the West Bank of New Orleans

After Katrina, with the city in turmoil and everyone uncertain about the future, my family seriously considered relocating to another state.  We even started looking for houses in a couple of locations that appealed to us because they were close to family and possible jobs. 

The one thing that stood out to me when house hunting was that most of the homes were pretty much the same from neighborhood to neighborhood.  There seemed to be about a half dozen floor plans that all looked the same from the outside and were all finished the same on the inside.   I mean, really, how many times can you look at the same old, same old and get excited about the thought of putting your roots down there?  I even asked the agent who was helping us “where are the houses that have some character?”

If you are looking for a home that goes beyond the traditional subdivision and isn’t part of the McMansion set that seems to be the rage in new construction, consider expanding your search to a home in one of the historic neighborhoods on the West Bank of New Orleans.

There are certainly pockets of older homes sprinkled across the area, but the biggest concentration of historic housing on the West Bank is in Algiers Point and the City of Gretna.  Homes with beautiful wood floors and original pocket doors.  Homes with fancy trim and brackets and columns framing front porches that are made for sitting and people watching.  Homes that were built with pride by craftsmen, not by a construction crew waiting for the whistle to blow and end the day.

Owning an older home certainly comes with its own challenges.  If you can’t stand the thought of a drafty window or can’t live without a double car detached garage, then you might not be happy with a house that is living, breathing, and needs to be loved and maintained.  If, on the other hand, you swoon over transoms and fireplace mantles and gingerbread trim…a historic property might be just the right place for you to call home.

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Are you relocating to or from the New Orleans area or NAS JRB New Orleans?  The West Bank Living Team would love to assist you with any of your real estate needs.  Different by design, we offer the services of both buyer and seller specialists who are dedicated to representing you and only you during your purchase or sale.  Contact us for more information about homes for sale on the West Bank or for a free, confidential market analysis of your home.

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