Renovation Lending Aids the Property Search Given Available Inventory

One problem facing buyers in the current market is the lack of available inventory. Sellers continue to bide their time. However, buyers do not need to miss out on low interest rates or the ability to purchase in their target neighborhoods. Although Renovation Lending is not the solution for every borrower, it is an opportunity to get into certain areas by purchasing a potentially lower- priced property and then borrowing enough money to fix it up.  It is by no means a panacea, but it is certainly an option and in many cases, one which can rapidly increase the equity in your property.

A Renovation Loan differs in many ways from a traditional construction loan. Reno loans are closed one time, with the purchase money going to the seller and the renovation funds placed in an escrow account held by the lender throughout the draw process. In most cases, there is no upfront money from you or the lender for the contractor; the General Contractor works on a draw basis. This is not a hardship for any solvent contractor as they should have the ability to buy materials and pay their sub-contractors while being reimbursed through inspected draws.

Most neighborhoods still have a large quantity of foreclosures that need to be fixed up or even properties that are simply outdated.  Here are some key words that indicate that the property may be right for a Renovation Loan:

• Sold “as-is
• Estate Sale
• Any foreclosure that has NOT been recently updated
• Fannie Mae or Freddie Mac foreclosures (especially the Fannie Mae HomePath properties)
• “fixer-upper”
• Handyman’s dream
• Current occupant has 400 cats
• Property needs “love or attention”

Depending on your budget, you can gut a property or just update the kitchens and bathrooms. As long as the property is habitable at the end of the six month rehab period and you remain within the guidelines of the loan program, you can often use your imagination as to what you would like your home to end up looking like. You can even purchase and rehab a 2-4 unit property as long as you occupy one of the units!

So, before you start your next tour with your agent, consider asking about properties that are ripe for renovation. It may be an opportunity to create the home you dream about and live in the neighborhood you choose!  Contact Carrie Rosenberg, renovation loan specialist, for more information.

Next topic: Which Renovation Loan Product is right for you?

TaxSmart Mortgage Credit Certificate Program

TaxSmart is a Mortgage Credit Certificate (MCC) program that provides a federal income tax credit to qualified homebuyers. A tax credit is a direct reduction of taxes due. Under the program, a homebuyer would receive a MCC to reduce income taxes by an amount equal to 20 percent of the interest paid on a mortgage. The tax credit may be claimed each year the home buyer continues to live in a home financed under this program. The homebuyer will be charged a $375.00 application fee of which $225.00 is due at loan closing to the City of Chicago, Department of Planning and Development. A charge of $100.00 will apply to replace or reissue a Series 2013 MCC Certificate for any cause including, and without limitation, due to being lost or misplaced, being damaged, a refinance of the existing mortgage, or any other reason allowed by the Code or the Program Regulations.

Federal law requires that a home buyer satisfy each of the following guidelines:

First-Time Homebuyer or Target Area Purchase

Any person who has not owned a principal residence at any time during the three years prior to closing a loan under this program is considered a first-time home buyer. Non first-time homebuyers are also eligible if they purchase a home in a designated target area.

Income

Federal law imposes maximum limits on the annual gross income of home buyers.

Purchase Price

Federal law also imposes limits on the purchase price of homes financed under the program.

Principal Residence

The home buyer must occupy the home as a principal residence within a reasonable period which, under most circumstances, may not exceed 60 days after financing is provided. A principal residence is a home occupied primarily for residential purposes and does not include a home used as an investment property, as a recreational home or a home in which 15 percent or more of its total area is used for a trade or business.

One-to Four-Family Home

Each residence financed must contain 1-4 units. A one-family residence includes a detached home, one unit of a duplex, a townhouse or a condominium unit. If the residence is a 2-4 unit building, one unit of the residence must be the principal residence of the building owner and the residence must have been first occupied for residential purposes at least five years prior to applying for a mortgage loan financed in connection wi t h the MCC.

New Mortgage

The mortgage loan financed in connection with a MCC certificate is required to be a new mortgage and may not replace a prior mortgage on the home (whether or not previously repaid).

Program Area

In order to be eligible for a MCC certificate, the home financed under the program must be located in the City of Chicago.

Mortgage credit certificates are issued to eligible home buyers on a first-come, first-served basis. The certificates are available in connection with any type of mortgage loan (except loans from tax-exempt bond programs), including fixed rate and adjustable rate mortgages.

First-time homebuyers must receive pre-purchase counseling to be eligible and must provide a certificate of completion of pre-purchase counseling with their applications. Applications and additional information are available from participating TaxSmart Mortgage Lenders.

Income Limits Non-Target Area Target Area Less than three-person Household $88,320 $88,320 Three or more person Household $102,985 $103,040

Purchase Price Limits*                                                  Non-Target Area                                               Target Area Existing New Construction Existing New Construction One Unit $357,750 $357,750 $437,250 $437,250 Two Unit $457,973 Ineligible $559,744 $559,744 Three Unit $553,598 Ineligible $676,619 Ineligible Four Unit $687,961 Ineligible $840,842 Ineligible

*These limitations are periodically adjusted and do not apply to mortgage credit certificates issued with respect to qualified home improvement loans.

Save Big Over The Life Of Your Loan

When purchasing a home, the interest rate of your loan is of prime importance as it can dramatically affect the amount you pay for your home. Depending on the amount of your loan, a 1 percent difference in loan rate can amount to hundreds of dollars a month, which on a 30 year loan can mean tens of thousands of dollars going into or out of your pocket. Here are some tips to get you the best possible interest rates on your loan. Tip 1 Conventional lenders charge a higher interest rate for lower credit scores. This is a pretty obvious statement to anyone who has in the past bought anything on credit or has a credit card. The difference in interest rates for a 620 credit score and an 800 credit score could be as much as .5 percent. If your credit score is under 700 it is recommended you use a credit score simulator to help you improve your credit score, although it could take several months to improve your credit score. Tip 2 Make a larger down payment. Today it is common for lenders to require a 20 percent down payment on the house you wish to buy to secure a mortgage. You can improve your chances of securing a loan and decreasing your interest rate by increasing the amount to more than 20 percent. Why? Because you are making a greater equity investment in your house thereby lessening the lending institution's risk of making a loan to you. A higher down payment can mean a .1 to .15 percent interest rate reduction. Of course, the higher the purchase price the bigger the difference. Tip 3 Pay points. Paying discount points can reduce your interest rate by a quarter of a percent. Points are considered a prepayment of interest, and each point is equal to one percent of the loan amount. On a $200,000 loan, this could mean $40,000 in savings over the life of the loan. Tip 4 Shorten your loan term. Typically by shortening your loan term, you can reduce your interest rate by one-eighth to three-eighths of a percent depending on the loan term. Obviously you have to make sure you can handle the larger payment due to the shorter term Tip 5 Buy a single family home. Without a doubt, you will get the best interest rate on a single family home. Condominiums and townhomes are considered a riskier investment because they tend to lose more value than single family homes when housing markets are softer. If you increase your down payment you may avoid paying a higher interest rate for a condo/townhome loan.   These tips are just a few of the more important ones related to securing the lowest possible interest rate for your home loan. Depending on which of these tips you choose or are able to take advantage of, you could possible save $50,000 to $100,000 or more over the life of your loan. Keeping You InformedA and N Mortgage Services, Inc. mortgage professionals are dedicated to keeping you informed of the latest market trends and mortgage options. Call A and N Mortgage Services, Inc. today  to obtain custom loan options designed to fit your needs and help you obtain your home goals.

I have been receiving a lot of questions about FHA Mortgage Insurance Premium, Here are Some Answers

FHA mortgage insurance is similar to the private mortgage insurance (PMI) required for conventional mortgages with down payments below 20%, but key differences exist:

Up-front Fees: 1% up-front fee due at closing.

Rate: For fixed rate loans, there is an annual premium of 1.1% to 1.15% of the loan amount per year, divided over 12 months. Variable term MIP rates are 0.25% to .50% per month for 15 year or shorter-term loans.

Removal: FHA MIP is mandatory for the first five years of loans with terms more than 15 years (even if your loan balance reaches 78% of the original home value or sales price. PMI premiums can often be removed if the loan balance is below 80% of current market value. Conventional loans automatically remove PMI when the loan balance falls below 78% of the loan amount.

Exceptions: If you have a loan term of 15 years or less and put down 10% or more of the sales price, the MIP will be cancelled after the loan balance falls to 78% (of the original sales price, or the original appraised value, whichever is less). 20% down on a 15-year loan cancels PMI altogether.
How the MIP Affects Your Loan Decision? Considering that PMI payments do not go towards the principle, or add to the value of the home, most borrowers would choose to avoid paying PMI altogether.

However, It's hard to avoid paying PMI without putting 20% down. IF you have good credit history, and the money to put 20% down, then a conventional mortgage is probably better for you as PMI would automatically be lifted. However, if the down payment is a family loan or a gift, you may not qualify for a conventional loan even with 20% down. In that case, an FHA loan with MIP may be your only option, if you cannot afford the higher payments of a conventional 15-year mortgage.

Call A and N Mortgage 773-305-5626 for any more questions!