One of the most basic pieces of advise…no new credit cards!  Yes it is tempting to be offered six months same as cash when you are purchasing that new sofa, but it involves applying for credit and a new obligation.  Most home buyers hate the idea of waiting to start shopping for furnishings but they really need to execute their mortgage before messing up their credit scores and debt load.  In fact, first timers should probably take as many hand-me-downs as possible until they get comfortable with their new monthly payment.  It is still rather easy to finance major purchases and before you know it, you will have so many payments that you will lose sleep at night!

If somebody is going to gift to you the down payment funds, get a gift letter from the lender to use and document the receipt of the funds correctly.  Lenders will request 3-6 months of bank statements and when they see that large deposit of cash, they will want you to provide documentation.  Make sure if you have a recent large one time deposit, you will apply toward a down payment, that you can document it.   If it is not possible to explain (you found the money, you have gambling winnings, you stole the money) you will find this issue to be a big sticking point for your mortgage.

Many bank owned properties today are for sale to only owner occupants for a period of 15-30 days after first coming on the market.   Unfortunately, we are seeing prospective buyers who are thinking they can sneak around these rules based on some technicality.  Unfortunately, many are guided by uninformed, inexperienced agents.   If you own another home, you will need to document that the one you are bidding for will be your home.  Not that the other home you own is going to turn into a rental and you are now going to drive an extra 50 miles to work.  Lenders are not that stupid.  I have even seen cash buyers get caught up on this one based on the location of their employment.  Better really be able to prove that you work remote and do not be surprised if the lender asks for a letter from your supervisor!

Not so long ago, lending standards were more lax and a lot of borrowers could say just about anything and not have to provide proof.  We all have seen how that worked out and nobody is going to allow us to get back to those standards anytime soon.  Be prepared for your lender, and don’t give them any reason to doubt you!

In one case I am able to suggest that such generous terms are not legend but reality.  The terms available on FannieMae foreclosures include:

3% downpayment for owner occupants, 10% for investors

No private mortgage insurance (PMI) keeping total payments lower

No appraisal

15 day preference for owner occupant bidders

Investor deed restriction that they will not resell for more than 120% of the purchase price within first 90 days of ownership (discourages flipping).

Some properties offer renovation financing.

In 2009 Fannie Mae launched a new branding program for their foreclosure (REO) properties.  Known as HomePath, the program initially identified the financing program that Fannie supports through multiples of lenders.  As the years have passed, the brand “HomePath” has come to identify all Fannie Mae REO properties, their marketing, where to find complete lists on the web, and the favorable finacing program.  Now, when you see one of our homes “for sale” sign, you will also see a HomePath rider that tells you this is a Fannie Mae owned home.  Most importantly, it tells buyers that this home is available with the best financing program available in the USA for foreclosure properties.

Why should you care about Fannie Mae?  They have one of the largest inventories of REO properties in the country.  Not inferring this is a good thing..but the sheer nature of who they are places them in this unenviable position.  Fannie Mae is a government-sponsored entity, chartered by Congress and overseen by the Department of Treasury.   Simply, Fannie has been the largest investor in mortgages for many years.  Their mission has been to provide liquidity to the market so that banks and mortgage entities could continue to make mortgage loans.   This means that a significant portion of the mortgages in the country end up Fannie Mae’s responsibility and as we know, in the last decade this has created problems due to the volume of owners who could not make payments on their mortgages.  It is estimated that Fannie Mae has an interest in one-third of all mortgages currently outstanding in the country.

The unfortunate end result is that Fannie holds a very large foreclosure inventory.  This fact is why any buyer or agent better be familiar with HomePath and be ready to utilize the program if the opportunity presents itself.   Start with a lender who is approved for HomePath and express your interest in using the program.   Make sure they respond enthusiastically.  Unfortunately, reports do come in to us that some lenders on the list provided at the HomePath site, often are not great advocates of the program.  This is their mistake and for you a sign to move on.

All FannieMae HomePath properties are available for review, and bidding by a real estate agent only, at www.HomePath.com.

The purpose of the GNND Sales Program is to improve the quality of life in distressed urban communities by encouraging law enforcement officers, teachers and fire-fighters/emergency medical technicians, whose daily responsibilities represent a nexus to the needs of the community, to purchase and live in homes in these communities.

What you need to know:

Available to Teachers,  Police Officer, Fire Fighters and Emergency Medical Responders.

Buyer can get a 50% discount off the HUD appraised value.

Homes are available in HUD designated revitalization areas.

Buyer must live in the home for a full 36 months as the buyer’s sole residence.

Must not have owned another residential property for the last 12 months.

Eligible Participants (Details)

Teachers

·         Full-Time

·         Pre-K – 12

·         Employed at State-Accredited Public and Private Schools

·         Serving Students From the Area Where the Home is Located

Police Officers

·         Full-Time

·         Employed by a Law Enforcement Agency of the Federal Government, a State, A Unit of General Local Government or an Indian Tribal Government

·         Must be Sworn to Uphold and Make Arrests for Violations of Federal, State, Tribal County, Township or Municipal Law

Fire-fighters/ Emergency Responders

·         Full-Time

·         Employed by a Fire Department or Emergency Medical Services Responder Unit of the Federal Government, a State, A Unit of General Local Government or an Indian Tribal Government

·         Serving the Area Where the Home Is Located

General Rules

·         Earnest Money Is Required of  1% of the List Price (No less than $500 and No More than $2,000)

·         Must “Bid” 100% of the List Price

·         Offers Selected by Lottery Number – Not Net to HUD

·         If Buyer Uses FHA Financing-  May Get Their Loan for $100 Down Payment and may finance the cost of reasonable and customary closing costs

·         Buyer Must Qualify for the list price (not just the discounted amount)

·         Silent Second Mortgage will be Recorded

·         Silent Second Mortgage Will be Reduced by 1/36th on the Last Day of Each Month of Occupancy

·         HUD WILL NOT PAY COMMISSION OR CLOSING COSTS- Buyer must build those into financing or pay with cash.

There is also a helpful FAQ at HUD.gov to answer all of your questions on this program.

Here is a screen shot from HUDHomestore.   Please use this easy method to determine if a HUD home will work for your buyer type.  You can click on the image in order to see a full size view.

]]> http://www.wilmothblogs.com/real-estate/2012/03/14/is-a-hud-home-available-for-my-buyer/feed/ 0 http://www.wilmothblogs.com/real-estate/2012/03/07/how-to-avoid-a-hud-contract-rejection/ http://www.wilmothblogs.com/real-estate/2012/03/07/how-to-avoid-a-hud-contract-rejection/#comments Wed, 07 Mar 2012 11:49:43 +0000 Joel Wilmoth http://www.wilmothblogs.com/real-estate/?p=576 A fairly significant percentage of the HUD 9548 purchase contracts submitted after a bid is accepted are rejected and the selling agent must make corrections in a short two business day window.  One of the HUD asset managers, recently provided us with a list of the most common reasons for rejection of these contracts.  To follow along, here is a link to the HUD 9548 purchase contract.

1.      Buyer does not initial line 12 where Purchaser acknowledges the Seller can keep their earnest money deposit if the terms of the contract are not met.

2.       Buyer name on the contract does not match the name on the bid.

3.       Financing type on the contract should be based on the way the property was  bid at HUDHomestore.com.

4.       Lead Based Paint Addendum contains check marks instead of the Broker’s initials where required.

5.       Often the Lender Letter does not indicate all the required items: loan type, loan amount, sales price, credit verified and a signature for the loan officer or name, title and contact information of loan officer.

6.       Money orders or other certified funds for earnest money must be made payable to HUD.

7.       Dollar amounts on line 5, 6a, 6b, & 7 do not match the bid amounts originally submitted at HUDHomestore.com.

8.       The Buyer and/or the Broker signs in HUD’s space.

9.       Authorization letter not included for agent to sign on behalf of the Broker.  Check with the Listing agent as to what is required as this varies by Asset Manager.

10.   Not following all the instructions on the correction email.  Errors on the revised contract submission are subject to the contract being rejected and the property placed back for bid at HUDHomestore.com.

We are here to help you get your contract submitted correctly.  If you are interested in understanding this process better, I strongly suggest you consider signing up for one of our monthly classes.

·         Sales Price

·         Primary purchaser

·         The amount of earnest money

·         Closing Cost concession

·         Net to HUD

·         Sales agent commission paid by HUD

·         Purchaser’s  Social Security Number

·         NAID Number used by Broker

·         Moving from Investor to Owner or Occupant or Owner or Occupant to Investor

Recognizing that there are some issues that come up that do not break the spirit of the agreement, HUD does allow some items to be amended.  First, go to the site of the HUD Asset Manager assigned the property to find the appropriate Amendment form and instructions.

• Financing type can be amended from FHA to conventional or cash or can be amended from Cash or conventional to FHA if the property is eligible. A lender letter or proof of funds will be required to make the change.
• Additional purchasers can be added but at least one primary purchaser must remain on the contract.
• Amount of the repair escrow can be amended for a 203B loan with a repair escrow.  Supporting documentation must be provided with the amendment.  These repairs may not exceed $5500. (actual repair escrow maximum of $5000 with 10% cushion allowance for a total of $5500)
• Address corrections can be requested – with supporting documentation.
• Closing Dates can be extended through the extension request process.
  • Broker and purchaser must sign extension request form (found at Asset Manager’s website).
  • An Extension fee is required and must accompany the request.
  • A lender letter or current proof of funds must accompany  the request and fee.
  • All three items are to be delivered to the closing agent. The closing agent will accept only if all three documents are received five business days prior to the expiration of the contract term.

A couple examples of real requests received for HUD contracts..and the result of the request.

If the bid states the purchaser is the Owner Occupant, this means this home will be their primary residence to be occupied by the purchaser for 12 months and the purchaser has not purchased another HUD home as an owner/occupant in the last 24 months.  This status CAN NOT be changed and if needed, the contract will be cancelled.   Even if the lender underwrites the loan for the owner-occupant as an investor loan, the contract will be cancelled.

Finally, HUD does not allow contingencies (ie inspections, home closings, cashing a big check etc.).   A HUD contract is a contract with limited ways that it can be amended.

These are just the rules of the game.  We do not write them.  We do want you to understand them.

As much fun as it might be to debate whether real estate transfers or transactions can, should, or will ever, be taxed…this is not the Great Satan that you should lose much sleep over.   The facts are this transfer tax applies to the so called “wealthy” earning $250,000 or more jointly or $200,000 as an individual, if the sale of a house produces a gain of $250,000 (filing single) or $500,000 (married filing jointly).  Even if the gain falls under these qualifiers, there are additional considerations that involve the household’s tax situation.  Keep in mind, this tax also only applies on principal residence sales after the $250,000/$500,000 gain exclusion.

I know taxes get everybody in an uproar when they potentially apply to their own interests.   Housing affects a significant portion of the population so this tax does get people upset.  Just please understand who needs to be upset and who likely will not be affected.  Here is a link to an article the National Association of Realtors have posted.  Also, if you want a deeper understanding, a down loadable brochure has been made available.