Is zero down now zero risk?

The Surprising Safety of a Zero-Down Mortgage

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ShutterstockThe zero-down loans offered by the Veterans Administration might provide lessons for the lending industry.

The safest mortgage on the market since the housing crash is one where most buyers put $0 down. Wait, huh? Welcome to the surprising world of VA home loans.

About 9 in 10 buyers using this historic benefit program purchase without making a down payment. Despite that, these government-backed mortgages have had the lowest foreclosure rate of any loan type for 19 of the last 26 quarters, according to figures from the Mortgage Bankers Association. The safety and stability of the VA loan program remains one of the more under-reported trends in all of housing. An Urban Institute study released this past summer highlighted the VA’s foreclosure track

Since 2008, the VA has helped more than 320,000 homeowners avoid foreclosure, saving an estimated $11 billion in potential foreclosure claim payments.

record, but it’s a mostly under-the-radar success story. That’s not to say the lending industry needs some seismic shift away from “skin in the game.” There’s clearly a benefit to and place for down payments.

VA loans are also a hard-earned benefit reserved for those who serve our country. It’s a special program, and it should stay that way. But these zero-down loans do offer some lessons worth a closer look.

Big Benefits: VA loan volume has soared 372 percent since the crash, driven mostly by a tighter lending climate, a tough economy and bottom-barrel interest rates. VA loans feature more flexible and forgiving requirements than conventional loans, including lower credit score benchmarks, no mortgage insurance and closing costs limits.

But the single-biggest benefit is the ability to purchase with $0 down. Qualified borrowers in most parts of the country can purchase up to $417,000 before needing to factor in a down payment.

Since 2008, nearly 90 percent of VA buyers have purchased without a down payment. Yet, for almost five full years, these loans had a lower foreclosure inventory rate than all others, including prime loans.

The reasons why have a lot to do with common-sense underwriting and a commitment to helping veterans not just get into homes but keep them.

Residual Income: One is VA’s unique requirement for discretionary income. This standard, known as residual income, requires borrowers to have a minimum amount of money left over each month after paying their mortgage and other major expenses. How much varies based on geography and family size.

For example, a family of four in the Midwest would need at least $1,003 in residual income each month. Buyers with a debt-to-income ratio above 41 percent must meet an even higher benchmark and exceed the guideline by at least 20 percent.

Debt-to-income ratio is still the major focus in mortgage lending. But residual income can offer a more realistic look at affordability and a borrower’s ability to keep up with their mortgage payments if emergencies occur.

How to keep Halloween from being scary for your home too…

Home Insurance Loopholes Can Leave You Howling on Halloween

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ShutterstockAre you covered if a trick-or-treater trips over a Halloween decoration in your walkway or is singed by a jack-o-lantern.

The following post is by BrightNest:

In one month, ghouls, goblins and The Little Mermaid will be at your front door. Are you prepared?
We aren’t talking candy-bought, decorations-up prepared. We mean, what happens if Glenda the Good Witch breaks her arm or your house is egged? Are you covered for that? Or will a night of tricks and treats become an expensive horror?

Note: Not all insurance policies are created equal! The following guidelines are standard, but there are exceptions. It’s important to get to know your insurance policy before you have to file a claim.
Here are three possible Halloween problems, and the skinny on what is and isn’t covered by a typical policy.

Trick-or-Treater Slips and Falls: Trick-or-treating can be really exciting! So exciting that little kids run and trip. And fall. Fortunately, most homeowner policies provide liability coverage if someone is injured

If you had a bonfire in your living room, that’s negligence. If you’re planning an ambitious flame display this year, check with your insurance company to determine how they define “negligence.”

on your property. The standard amount per occurrence is $100,000, but you may be able to increase this amount depending on your policy.

Tip: To prevent this from happening, it’s important to prepare your house for Halloween! Plenty of lights and a clear walkway will decrease the likelihood of an accident.

The Potential Loophole: If you’re sued because of the accident, your policy may also pay to defend you in court. But keep in mind that you’re typically only covered for negligence. You aren’t covered for intentional injuries — meaning if little Glenda the Good Witch hurts little Kevin the cowboy, you won’t be covered!

Jack-o-Lantern Catches Fire: Do you light your jack-o-lantern with a candle? If so, you’re not alone. Over the last three years, an average of 15,500 fires per year were caused by an open-flamed jack-o-lantern, according to the U.S. Fire Administration.

Fortunately, most homeowner policies cover fire from a lit candle or a string of decorative electrical lights. If the fire displaces your family, insurance will typically cover the cost of additional living expenses.

The Potential Loophole: Coverage may be limited due to “negligence” depending on the origin of the fire — for example, if you had a bonfire in your living room, that’s negligence. If you’re planning an ambitious flame display this year, check with your insurance company to determine how they define “negligence.”

“Tricks” Dent Your Siding: For the most part, “trick-or-treat” is heavy on the treat part. But, not always. Sometimes, tricks happen, too. And next thing you know, your house is egged (or worse), and there’s damage to your siding!

If this happens to you, it’s considered vandalism under most standard insurance policies, which means you will be protected. If the repair cost exceeds your deductible for vandalism, the insurance company will cover the repairs. If you’re concerned about any mischief on Halloween, double-check your homeowners insurance policy to make sure vandalism is covered.

How to help a sister out (literally).

Keys to Helping a Family Member Buy a Home Now

dream home
ShutterstockHelping a family member purchase a home just got a little more complicated.

If you plan to help your family member purchase a home, take heed: Transferring money among different bank accounts is going to make their homebuying process stickier. Furthermore, if you’re unable (or refuse) to document the origin of the monies you transferred, you can only impede your family member’s home purchase. Here’s the scoop.

Donor funds must be documented, sourced and paper-trailed. Let’s say you’re helping your daughter buy her first home. The amount you plan to give her is $20,000. Her mortgage lender or broker originating her loan will need you to sign a gift letter stating the relationship, and to identify the account where the money is coming from. Formerly, you were required to show only the most recent

You can make the process quick and easy by moving the monies one time….

statement on this account. However, new lending regulations now require two months of statements showing where these funds are coming from.

Where Things Become Sticky: If you plan to provide gift funds for your family member buying a home, keep it simple and have the funds in the account ready to go for use in the transaction. If your checking account, for example, has $10,000, and a new deposit or transfer comes into this account from another source totaling the $20,000 you plan on donating, things just got more technical. The lender will need to see where the additional funds came from, and sourcing the money movement.

All monies must be accounted for to fully support that there is no money laundering or fraud-related activity. Mortgage companies must adhere to this level of scrutiny, but it doesn’t necessarily have to be difficult. If the money to be donated is not in the account you plan to use, take this example as guide. Say the money is coming from a money market account where all your assets are kept. It would be tremendously easier to simply wire the monies from the asset account where the monies normally reside directly to escrow, bypassing your child’s checking account, which typically has daily transfers and withdrawals as most people use a checking account for their normal daily and/or monthly spending activities. Moving the money directly into their checking account or even your account is not necessary, and in fact it creates a scenario on paper that the donated funds for the home purchase are being spent.

If the damage if already done, re-gift the monies to escrow, otherwise it may appear your family member has shorted gift funds to close escrow.

Keeping a down payment from being a downer…

Buying a Home: Clearing the Down Payment Hurdle

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Shutterstock The key is finding the right plan and being a solid applicant with decent credit and stable, verifiable income.

For many, the down payment is the toughest obstacle to get past when buying a home. However, there are many programs available for buyers with a small (or even no) down payment. The key is finding the
right plan and being a solid applicant with decent credit and stable, verifiable income.

Community Homebuyer Program: 5 Percent Down — These loans are designed for buyers with low-to-moderate incomes. First-time purchasers must complete a homebuyer education class. Applicants must meet underwriting guidelines, but the program may not be available in all states. In addition, mortgage insurance is much less expensive.

• The applicant’s annual income must be equal to or less than the area median income. Freddie Mac’s Lookup Tool indicates what your income should be.
• Income eligibility requirements may be different in high cost areas.
• An exception to the income requirements applies when for-sale properties are located in designated “non-metro” or “underserved” areas.

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FHA: 3.5 Percent DownFHA mortgages were designed to increase home ownership. The program imposes no income limitation and is not restricted to first-time buyers, but there are maximum loan sizes that depend on the property location. FHA’s “official” underwriting guidelines allow credit scores as low as 580 for loans with 3.5 percent down, but many lenders impose higher minimums. FHA requires an upfront premium of 1.75 percent of the loan amount, plus annual premiums (divided by 12 and added to the mortgage payment) of 1.35 percent of the loan balance for most borrowers with 30-year loans.

Unlike conventional (non-government-insured) loans, FHA requires payment of mortgage insurance for the life of the loan.

USDA: Zero Down — The Department of Agriculture’s Rural Housing program allows 100 percent financing of eligible property. Homebuyers should not necessarily be deterred by the term “rural.” About half the population in the United States lives on property considered “rural” by the Department of Agriculture. USDA loans come in two varieties — guaranteed loans, which are funded by private lenders and backed by the government, and direct loans, in which the government provides the funding. The direct program is for people with lower incomes and may also provide a subsidized interest rate and a term of up to 38 years. The guaranteed program has more relaxed income restrictions – and provides loan terms for up to 33.

Kitchens don’t come much cuter than this…

Kitchen of the Week: Family Friendly and Stored With Secrets

 

This kitchen has a clever secret, but we’ll get to that in a minute. The family who lives here hired designer Nathan Taylor to turn their kitchen into a more flexible, functional space that all of them could enjoy. They didn’t want to abandon the history of their cottage, but they also wanted to put their stamp on it.


Traditional Kitchen by Springfield Interior Designers & Decorators, Nathan Taylor for Obelisk Home

The home was built in the 1940s and is what Taylor refers to as refined cottage style. Not so refined, though, was the kitchen, which had next-to-no storage and felt dark and cramped. The floor was linoleum on top of some more linoleum — and once they were ripped out, rotted wood floors were revealed.

Kitchen at a Glance
Who lives here: A family with 2 sons, ages 5 and 7
Location: Springfield, Missouri
Size: About 15 feet by 15 feet (21 square meters)
Team: Interior design: Nathan Taylor for Obelisk Home; cabinetry: Cabinet Concepts by Design


Traditional Kitchen by Springfield Interior Designers & Decorators, Nathan Taylor for Obelisk Home

The cabinetry conceals a handful of secrets. To the left, pocket doors open to reveal a baking center with a granite countertop that can be hidden when guests come over. It also conceals smaller appliances, including a microwave and toaster. Taylor added high upper cabinets with seeded-glass doors to make the 8-foot ceilings appear higher. Their lights help brighten the room, and the seeded glass adds to the period feel.

Does the market hinge on Millenials?

Turnaround: Millennials driving housing momentum?

Housing optimism boosted by millennial confidence

Millennials are now the key driver behind housing confidence, which is quite the anomaly given millennials’ hesitance toward the housing market over the past year.

According to the latest Zillow Housing Confidence Index, the headline U.S. ZHCI increased to 64.2 over the summer, up from 63.7 in January, and housing confidence increased among residents in 11 of the 20 major metro areas surveyed.

“It’s heartening to see younger renters express so much confidence in their ability to buy a home in coming years, because today’s renters by necessity are tomorrow’s buyers,” said Zillow Chief Economist Stan Humphries.

“Cynics might argue that these results represent no more than youthful exuberance, or perhaps some naiveté, but that’s missing the point. We need this generation to be confident and wanting to buy, regardless of the difficulties they face,” Humphries said.

And this generation does faces difficulties, Humphries explained, including saving for a down payment in the face of high rent and high student debt burdens, uncertain job prospects among younger workers and limited entry-level home inventory.

This is all a dramatic change from the picture of millenials as roadblocks to the housing recovery that usually fill news headlines.

Millennials witnessed the struggles their parents suffered from the housing crisis, and have piled on their own burden of student debt.

Read more…

Listen up, sellers!

Half of Americans expect home prices to continue growing

Bankrate.com: Overall confidence up but more insecurity among women

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A full 53% of Americans think home prices will gain, and only 8% expect home prices will slip. The results were consistent despite gender, age, income and education differences.

Last year at this time, 55% of Americans said home prices would rise over the ensuing 12 months, and they were correct. Nine percent predicted a decline.

“Housing, like the stock market, is something consumers look to as an indicator for whether things are headed in the right direction,” said Greg McBride, Bankrate.com’s chief financial analyst. “When home prices fall, everyone gets a little queasy – homeowners and renters alike. The expectation of continued home price increases underscores an expectation for continued improvement in the job market, household finances and the overall economy.”

Bankrate.com reported that its Financial Security Index registered 100.4 in September, indicating improvement over one year ago as well as over the past two months.

Bankrate.com’s Financial Security Index has been over 100 – the level that illustrates improvement over the past year – in seven of the first nine months of 2014.

Notably, September brought a big divergence on feelings of financial security between men and women.

Men’s feelings of financial security improved on all five components that Bankrate.com measures compared to August, while women’s feelings were the exact opposite, falling on all five components compared to last month.

Job security grew in August, with 26% of Americans feeling more secure in their jobs and just 14% feeling less secure than one year ago.

Read more…