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Tuesday, April 29, 2014

First time buyer – I’m an intern, what this doctors mortgage thing?


Answer – Well, first of all, congratulations for making it this far in your quest to become a doctor. You’re in the home stretch. And, speaking of homes, there are special programs in many states, including Michigan, that are just for new doctors.

The so-called Doctors Mortgages have some great features, including the possibility for zero down and with no PMI. These mortgage are often balloon loans and do carry a premium in the rate, however the lack of PMI makes up for part of that.

So what’s the how and why of all of this? Well banks, led by Bank of America in this case, figured out  that there is a significant number of new doctors emerging from the medial school process each year. These are people who’ve been head-down and flat out for 6 – 8 years studying and learning how to be doctors. Many of them have not established any regular credit; or, if they have credit cards they may be maxed out. Many of them are already heavily burdened with student loans to help pay for all of that schooling – not exactly what would be considered to be prime risks for mortgages.

BoA looked at that market and said, “You know what; these are high potential earners with historically good records for paying off debts”; so they created a special mortgage program just for new doctors. The states probably got involved because this is a case of discrimination (in a good way) that had to be blessed. The States that jumped on the band wagon like the program because it encourages new doctors to stay I the state. Now there are several banks offering these mortgages in many states.

So what are the programs?

Here are some basic features as outlined on the Web site The White Coat Investor
A doctor’s loan:
  • ·         Is made to a new resident, new attending (7-10 years out of residency or less), or dentist only (although some offer loans to veterinarians, optometrists, podiatrists, and even attorneys)
  • ·         Requires little money down (0-5%)
  • ·         Doesn’t require the borrower to purchase mortgage insurance (PMI)
  • ·         Will accept a contract as evidence of future earnings (instead of paystubs the doctor doesn’t yet have)
  • ·         Requires the physician to open a bank account at the bank from which the mortgage is paid by auto-draft
  • ·         Is designed for townhomes, row houses, and single family homes (not condos)
  • ·         Has the same rate whether loan amount is above or below “jumbo loan” limit ($417,000 in my area)
  • ·         Some programs even allow you to use gift money for a down payment
  • ·         Requires cash reserves equivalent to a few months of Principle, Interest, Taxes, and Insurance (PITI), a reasonably good credit score, and a loan payment to income ratio of no more than 38%
  • ·         Often doesn’t calculate student loans toward the loan to income ratio

You can go to the article on that site for a complete list of states where this program is available.

This isn’t a free-lunch program. You will pay a higher rate to get one of these loans, but it is structured such that you can refinance it once you get over your startup period (and costs) as a new doctor. It looks th other way on some of the debt load that you are already carrying based upon historical data that says you are a good credit risk. While it does cost more in terms on monthly interest you will get part of that back because of the lack of the monthly PMI payments.

There are other programs available to doctors, just like they are to others and you can read about them at The White Collar Investor site, too. You can read more about doctor loans and comparisons with other options at http://www.physicianloan.org/DoctorLoanComparison.html. That site also has great information about who qualifies and other features of the program.


All-in-all, given the problems that a newly minted doctor might have getting a convention mortgage loan; this seems like a good program to check out. I would advise that you go to the sites mentioned in the article and carefully read through them to see if this is for you.

Monday, April 28, 2014

First time buyers (or seasoned buyers) – Beware the bank counter-offer


Question - I made a bid on a foreclosed house and now the bank has countered with a huge document of their own. What’s that all about?

Answer – The bank has essentially made a counteroffer. Your original offer is now invalid and
they have asked you to respond to their counteroffer by accepting or rejecting their offer. Banks are arrogant corporate entities, faceless and soulless. They play by their own rules and nothing that you’ve already learned about the process will necessarily apply to a bank foreclosure deal (or a bank short-sale deal for that matter).

What the bank has sent back to you is their Purchase agreement with their terms and conditions. Go over it very carefully with your agent. Don’t make any assumptions that anything that you had in your original offer still applies. The bank counteroffer will give you the price that they will accept; they will tell you how much, if any concession they will make to help out with your closing costs and they will tell you exactly when you have to be ready to close or they will impose a monetary penalty upon you.

The banks also use this counter offer to construct an elaborate tort shield for themselves by denying any responsibility for anything to do with the property. Like Sgt. Schultz on the old TV series Hogan’s Heroes, “They know nothing.” It is not unusual for the various denials for various aspects such as condition or mold or anything else to take up 15-20 pages of legal mumbo-jumbo. Lawyers love the banks and make tons drafting these documents.

The bank may also specify that you must have yourself pre-approved by one of their loan officers, even if you don’t have any intention of using them for your mortgage. They use this ruse to gather more information about you to see if you are really a serious buyer. The banks may specify what type of mortgage you may get for this purchase and may disqualify some of the loan types or programs that you were hoping to use. Pay close attention to the clauses that define when you must be ready to close, the close target date and what the penalty is if you miss that date.

Lately the banks gave been using their unregulated power on these types of sales to ignore or throw out the local standards and practices for things like the tax proration and who pays various closing costs that have always been the responsibility of the seller. They just say, “Nope I’m not going to pay for your Owners title Policy, if you want one you pay for it”; or they may claim that they don’t have to pay normal state taxes or fees. Several states Attorney’s General or County Treasures have taken them to court and won over some of those shenanigans. They may also refuse to pay outstanding liens from the Homeowners Association for keeping the lawn cut on their run-down property and leave you holding that bag, too.  “Do the right thing” is not in their vernacular so don’t expect it from them.

The difference between dealing with a bank and dealing directly with a seller on these issues is that the seller usually really wants to sell and is willing to be reasonable and to make compromises. Banks just don’t care. They have no skin in the game. In fact they aren’t usually even the real decision makers; they are just acting as servicers for the real owners of the debt and just facilitate the process. The real decision makers are like the Wizard of Oz, hiding behind the curtain. They are never seen and you never get to talk to them directly.
The real decision maker in a foreclosure is an obscure entity call “The Investor.” Most of the time these days the investor is a corporate entity that bought you loan as part of a pool of loans that was collateralized. To this mysterious entity behind the curtain, you and this property are just numbers on a spread sheet; something for him (them) to “run the numbers on” and to be voted on in the committee meeting. There is absolutely no transparency in the decision making process of the investor. There isn’t any concern over you or the property, in fact they don’t even see it as a property, to them it is an asset to be bought and sold just like a commodity. This is as close as you’ll ever come to understanding how Wall Street works, because the investor is Wall Street.

So what can you do? You can walk. You can just say no. They don’t care. It won’t hurt their feelings because they have none. But, if you really want the house, then make sure with your Realtor that you understand what you are signing up for. Go over every line of their counter offer and understand any and all requirements that you must meet and the deadlines that they are imposing. Just understand that by signing up for this deal you are no longer protected by the rules and code of ethics of the real estate industry and you have probably given up a number of your normal consumer rights, too. Once you sign that contract you must dance to the devil’s song.

If this post has served to scare you off a bit, good; then it has served its purpose. You will seldom be in a more powerless situation over something that is important to you. This is not a game for virgins and even seasoned Realtors hate dealing with the banks on these foreclosure and short sale deals. You can get some great prices in these deals, but you can also get yourself into something that you can’t extract yourself from without it costing you -  caveat emptor!

Here are some other readings that may have different takes on this process –

Tuesday, April 22, 2014

First time buyer – I’m about to get out of the military. Can I use my VA benefits to help buy a home?


Answer – Yes, in fact you can get started o that process before you even leave the service. You will need a Certificate of Eligibility, which you can apply for prior to your separation. In the case of a VA guaranteed home loan, the start is to apply for your VA Home Loan Certificate of Eligibility, which you will need to actually get the loan. With that in hand you can start talking to mortgage reps. Click here to go to the VA Web site page for the complete story on home loans.

The VA benefit that allows service members and veterans to buy homes with nothing down doesn't come without some strings attached. Perhaps the most important one initially is that the home that you are going to try to buy has to qualify for VA financing. Sounds innocuous, but it may severely limit your choices. When a builder is developing a project one of the many paperwork issues that he has a choice to go through is a VA Certification. While this paperwork isn't really onerous, it takes time that many builders just blew off when they were developing condo complexes and site condo subs.

A variation on the condo theme is the site condo, which is a Michigan invention that became popular in the mid 1980’s. Basically developers found in the mid-80’s that they could get through the Michigan’s approval process for condo developments in less than half the time and at less cost than going through a complete subdivision platting process. They decided that they could build homes that were a step beyond detached condos, but which would still fall under the State’s development rules for condos.

The idea of a site condo is that the owners own and are responsible for the little piece of land upon which their home sits and for the house itself (inside and out); but that the plot and house exist within a condo complex which also owns some common areas and requires that the homeowner be a member. Importantly, the “common areas” include the roads within the complex, plus any other areas like playgrounds or parks spaces or even the entrance to the complex (you've all seen the little entrance islands with the sub name on them – the association owns that, too). So, collectively, the owners are responsible for all of those things and for insuring those areas.

For the most part a site condo development is so much like a typical plated subdivision that one can’t tell the difference; until it’s time to repair or replace the roads. In plated subs the roads are the responsibility of the local governmental body – the Township, Village or City. In a site condo complex, it’s the homeowners who are on the hook. That is one big reason to make sure that you check to see if the HOA is collecting and saving money for road repairs in your site-condo sub.

The other things that can be dramatically different are the rules that you may have to live under in a site condo sub. Some site condo HOA’s have very strict rules about what you can and cannot do to your property, especially on the outside. Some go so far as to have committees that must approve any exterior changes r additions and even what colors you can use on the exterior. If you can live with the restrictions that are impose by the site–condo HOA, then don’t buy there in the first place.

Finally, and most important for the VA buyer is that most site condo complexes build in the 80’s and 90’s and even in the early 2000’s were NOT VA certified. The builders just didn't take the time to put in the paperwork. The VA has just recently agreed to a process for certifying Condo complexes that were not certified when built. It is a process that has a cost ($850) and requires some work on the part of the Condo Association, so you may get some push-back on it; however, it is in the best interests of the current owners to open up their complex to this new set of buyers. It does take time too (usually 60-90 days), which may be a problem if you need to get in quickly. Click here to read about what is required to get an existing condo (site condo) complex certified for VA loans. 


The VA also uses an appraisal process that is similar to the FHA process, in that the appraiser is also checking the house to see if there are any health hazards that need attention. Some sellers find both the FHA and VA appraisal/inspection process to be objectionable and thus do not offer those as financing options that they will entertain. 

If you can find a property that yo really like this program can be a great way for a first-time home buyer to get into home ownership. Even if you've had homes before, if you have never used your VA benefits for any of them, you can still use it. Good luck and thank you for your service to our country.

Monday, April 21, 2014

First-time buyer – Can I change mortgage companies after I made the offer?

Question - I submitted an offer on a house and used a pre-approval from one mortgage company, but now that the offer has been accepted I want to change mortgage companies; can I still do that?

Answer – The short answer is yes, you can change mortgage companies; however, remember that the offer
that you made and which was accepted was based upon a pre-approval of some sort from a mortgage lender. The seller used that pre-approval as part of their decision to accept your offer. If you are going to change now, after the offer was accepted, you need get a new pre-approval letter and present that to the seller. If you not only changed mortgage companies but the mortgage type, you may get push back and even a cancellation of the deal by the seller.

On most Purchase Agreements there is a timetable for the buyer providing proof that they have initiated the mortgage application process – usually within the first 10-14 days in this area. There is also a timetable that you have put some committed date upon to get through that process – usually 30-45 days (longer if it is a short-sale or foreclosure). The reason that I mention those is that you have started those clocks running when you signed the PA and to start a search for a mortgage company now may throw those timetables off. So, if you must make a change, do it quickly.

There is also the commitment, if any that you made or feel that you made to the original mortgage rep. If you didn't do anything more than talk to him/her over the phone and answer a few questions for a pre-authorization that is one thing and you’re probably free and clear to change. If you sat in their office and filled out forms, or maybe even signed something (was that a mortgage application?) you may be on the hook for at least some charges. If the mortgage rep went beyond just the preliminary credit check, perhaps at your request, then they might have expenses that they need to recover from you. Usually there are no costs until they order the appraisal, which they will charge you to do. That normally comes after you've officially filled out and signed a mortgage application.

The changing of the mortgage type that you are now seeking can be a bigger deal to the seller and may even queer the deal. If you made the original offer with a 20% down conventional mortgage loan pre-approval and now you wish to switch to a different type- maybe a zero down VA loan or a 3.5% down FHA loan – the seller does not have to accept that change. He can walk away and may even try to keep your Earnest Money Deposit (EMD) because you reneged on the original deal. He probably won’t get to keep your EMD, but he certainly can nix the deal based upon this change. You need to understand that the requirements on the seller that accompany some mortgage type are onerous to many sellers.

The seller would have the same recourse if you suddenly decided to try to use a down payment assistance program like the MSHDA program in Michigan. While you may think that it should make no difference to the seller where you get the money that is not the issue. The issue is that use of those programs adds length and risk to the process. It takes extra time to get those down payment assistance programs approved and there is a risk that you’ll go all the way to the end of the process and not be approved. In the meantime the seller’s house is off the market and missing other opportunities. Yo can see why he/she might not wish to let you switch from the original offer.


So you can see that the message of today’s post is that you need to have the mortgage step worked out and firm before you make an offer. This is not a game, so don’t approach it like one. Would-be buyers who play the game of throwing low-ball bids to see if any stick or bidding and then trying to switch the mortgage type or company will soon develop a reputation that no good Realtor will want anything to do with and word will get around.  Do your mortgage shopping ahead of getting that far in the buying process and be honest with the mortgage person and the seller from the start. If the seller gets the idea that you were just stringing him along, he won’t trust you and may just back out of the deal, which is his right. If the Realtor feels that you are just playing games he will (or should) fire you as a client. Don’t go there.

Saturday, April 19, 2014

First time buyers - I’m thinking of buying a fixer-upper and doing the work myself. Got any advice?

I hit this all the time. Buying a fixer upper seems like such a great way to save money. I sometimes relate the stories that I can remember from childhood of the old Our Gang show on TV. This was the show with Spanky, Alfalfa, Buckwheat and Corky and the rest of the gang. Their little Our Gang  10-15 minute vignettes were a staple of the kids TV shows of the 50’s and 60’s, along with cartoons.  At least one a month, the gang would get into some sort of situation where they needed to raise money. Then someone in the gang (usually Alfalfa) would say, “I know. Let’s put on a show. You get the band together and I’ll get us a stage.” Off they would go and soon would be charging admission for their little show. Alfalfa was the singer in most shows and they always managed to pull it off and get the money to save the day. Click here to view one of the Our Gang vignettes on YouTube.

I get the same kind of cute impression sometimes from first time home buyers when they imagine taking on a fixer-upper project – “You get a ladder and I’ll get a paint brush and we’ll fix this place up in no time.”  Unfortunately it just does work that way in real life. The reason the fixer-uppers are so cheap is that they normally need a lot of work and work that is going to be expensive.  Even if you are fairly handy, you probably aren’t going to have all of the skills and special tools required to do all that these homes might need.
It is unfortunate, but a fact that, many of these homes end up back on the market within a few months (that’s why we call them boomerang homes in the real estate business). The buyers usually run out of money or get frustrated by the amount of work required well before they get all of the repairs and updates done. Often you will see these homes on the market in semi-finished stages, with gutted out kitchens or baths, or perhaps with a kitchen or baths that are done and the rest of the house still in need. The first-time buyers underestimated badly the amount of money, time and effort need. 

So, what should you do about that fixer-upper that you have your eye on? First, have a good heart-to-heart talk with your Realtor about what he/she thinks of it from what they have seen. Realtors see a lot of really bad houses and can usually spot the big things that will need to be done; however, they are not home inspectors, so you’ll need to have a good home inspection, too. I good home inspection will find all of the things that may need to be repaired or replaced.

Sometimes a fixer-upper will be in such bad shape that a good inspection can’t even be done. In those cases, assume that you will need to replace everything that you couldn’t properly test – furnace and air conditioning, water heater, well system, perhaps the septic (if it is winter and you can’t get to the tank top), maybe even the roof, if it is snow covered. In extreme cases about the best that the inspector can tell you is whether the house is structurally sound or not and whether it has problems with mold, radon, infestation or water penetration. For each thing that the inspector finds wrong he/she should be able to give you at least a ballpark cost to repair or replace. They are giving you a real estimate for the work, just a ballpark guideline so that you can get a feel for whether it is a big or small cost.

The next step is the one that most would be fixer-supper owners miss or get wrong. You must do an honest assessment of your capabilities to do the work that will be required and if you have the time that will be required.  Many first-time home buyers are working couples with very little time off to be together in the first place. After a few weekends of working on the house all weekend, you may wish that you had that time to yourselves. If you plan on using help from family and friends, assess that too. Just because you have an Uncle in the heating business or a friend who is really handy, doesn’t give you all of the support that you need for a big fixer-upper project.

Perhaps you do have enough family and friends in the building trades to help with the work; the next question is do you have enough money to buy all of the materials that will be needed.  Almost as important is the question, do you have the necessary discipline to stick to a budget for the work. The difference between putting in “builder-grade” materials in the baths and kitchen, verses, using the great looking stuff that you see in the design books is several thousands of dollars. Running out of money because too much was spent early in the project on a kitchen or bath is what causes so many fixer-upper buyers to stall out and abandon the project.

So, my advice is to do some deep soul searching about your real preparedness for what is involved in a fixer-upper project house before you get too far with it to back out. It may cost you $300-600 to get all of the inspections done that you’ll need in order to make a decision whether to proceed; but, that is money well spent to avoid the loss of thousands later on. Second, look at your life situation and ask if you really want to devote your life to this project for six months to a year. It can take that long or longer if you have full-time jobs to worry about, too.  It is also possible that the house won’t even be habitable for months after you close, so having a plan for where you will live until you can get enough fixed is a must.

If I’ve scared you with this post, good; taking on a fixer-upper is a daunting task. It’s usually much more than a new coat of paint and some new carpeting. So let someone else get the band together and get the stage. Sit in the audience and wait for that show to end and maybe you can then buy the house in a condition where you can move in.

In case you need to read more about this, here are some good links –


Good luck with your decision.

Thursday, April 17, 2014

First time buyer – Can I use a friend to do my home inspection?


Question - I’ve got a friend in the construction business. Why can’t I use him to do my home inspection?

You could; but let’s make this comparison – if you had a fiend in the medical field, maybe a dermatologist or
a foot doctor, would you use him/her to deliver your first child? No. Why not? How about to perform an operation on you? No. Gee, I wonder why?

You can have a friend who is a carpenter, but will he know about plumbing and electrical or be able to test your well and septic? Maybe you have a friend who is a plumber; will he be able to assess the mold that you might find, do the radon test or climb up on your roof and inspect the chimney flashing? Maybe your friend is a roofer; what does he know about your plumbing system or can he properly inspect and test your electrical system. Will he know how to test your HVAC system? How about Sal the painter, is he the fiend in the building trades that you want to advise you on cracks in the foundation? 

So, the real answer is no. Good home inspectors know what to look for and how to test and assess the house from top to bottom and all of the systems in between. Good inspectors will either be able to do your well and septic inspections or they will bring someone with them who can. They might do the radon test themselves or have a companion test for that. Not only will you get a thorough inspection and report on the whole house, but you’ll learn about all of the major systems as you follow the inspector around.

I’ve been on hundreds of home inspections; so many that I can spot the issues now (but I still leave that to the experts). I’ve seen excellent inspectors in action and even some who were somewhat marginal; but even the less effective ones are still better than the job you would get by having a “friend in the trades” do the job. About the closest that you can come is if you have a builder with lots of homes under their belt, but even then, most of them do not do as good of a job as a good full-time home inspector.

I have to ask you again; why would you do that? Do you think trying to save a few bucks up front is worth finding out 2-3 months into owning the place that your friend didn’t advise you that the furnace was on its last legs or that the hot water heater was about to fail, because they didn’t know what to look for or how to test them? What about getting I and getting sick because your buddy didn’t test and so didn’t find the cracked heat exchanger on the furnace that is now dumping carbon monoxide into your home every time the furnace runs? Or maybe because your bud didn’t want to do a septic check you get in and the field has failed and the sewage is backing up in the basement. Is it really worth those kinds of risks to save a couple hundred bucks?

There are other places to look to see if you can save a little on this first house, but the home inspection should not be one of them. It doesn’t matter if your buddy tells you that he can do it all, because he’s worked on several houses and owns his own house – don’t do it! Get a professional home inspector. You can go to these sites for recommendations on home inspectors and to see what they have to go through to be certified by these groups. A good home inspector will likely belong to and be certified by one of these groups.



Wednesday, April 16, 2014

First Time Buyers – What should I know about HUD houses?


I saw a home with a sign that said it is a HUD property, what’s that all about?

First of all, what is a HUD home? HUD stands for the U.S. Department of Housing and Urban
Development, a branch of the federal government. From the HUD Web Site comes this answer - A HUD home is a 1-to-4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim.

So it is a home, duplex or 4-plex that was foreclosed. Maybe there was an attempt to do a short-sale and that didn’t work out. Maybe the lender even tries to sell it in foreclosure and failed. For whatever reason the investor has taken advantage of the FHA guarantee on the original loan and given the property to HUD. 
HUD then assigns these properties out to local real estate brokers for sale to the public.

HUD homes are sold in “As Is” condition, which can be anything to move-in ready (rare) to needs lots of work (common). Again, from the HUD Web site: HUD does not warrant the condition of its properties and will not pay for the correction of defects or repairs. Since the new owner will be responsible for making needed repairs, HUD strongly urges every potential homebuyer to get a professional inspection prior to submitting an offer to purchase.

Many HUD houses are priced very low, so a great number of them are purchased for cash; however it is possible to get a mortgage to purchase a HUD home. There are special programs available from lenders in case the home needs extensive repairs. The HUD site explains some options in that case:

If you are interested in acquiring a HUD Home that is in need of repair, you may be interested in applying for an FHA 203(k) Rehabilitation Loan. When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. Click here for more information about FHA's 203(k) Rehabilitation Loan Program.

Your lender should be able to explain to you the financing options for a HUD home that they have available. There are programs available through FHA and you may qualify for one. The home has to qualify too; so check with your lender on that. There are also special programs available through FHA for designated members of the community to get an even better deal on these homes. Again from the HUD site:

FHA REO properties located in designated Revitalization Areas are available at a reduced sales price to law enforcement officers, teachers, firefighters, emergency medical technicians, nonprofits and local governments. Read more about these Good Neighbor Initiatives.  You can also view maps of REO properties and special programs such as Revitalization Areas with HUD’s Single Family Home Locator.

Buying a HUD home is a slightly different process and your Realtor® should know how to handle that. Basically when a home is made available through HUD it is placed on the HUD Web site the HUD Home Store. It is at that site where you search for HUD homes that are for sale in your area and can obtain more information about the homes. Once you have found a home on that site that you think you will like, you can arrange through your Realtor to go see it. If you like it you can make a bid through your Realtor. Only Realtors are authorized to submit bids through the HUD Home Store site.

Bidders who are individuals who intend to live in the home (you will have to sign a sworn affidavit to that affect) are given a special 2 week period of exclusivity at the beginning of the homes listing for bidding and are considered first.  After that, investors may bid on the house.  Any and all bids from individuals are evaluated prior to opening the bidding to investors. Usually the best and final bids are called for from the bidders before moving into that second stage.
It doesn’t cost anything to make a HUD bid; however, if your bid is accepted you will need to write the check for your earnest money within 24-48 hours of the acceptance of your bid, so be ready with that. You will also have a specified amount of time to get the deal to a closing, so be ready with a pre-approval and have some contractors lined up to go in and give you bids on repair work, so you can get a good idea of how much you really need.

HUD reserves the right to reject all of the bids, if they are considered to be too low or the bidder cannot prove that they actually can complete the deal. You may have to wait a week or two to find out if your bid was accepted or rejected. If it was rejected you may be able to bid again, if no other bids were accepted; however, by the time that occurs you will probably be bidding against investors; so make your first shot your best shot, if you really want the house.


The bottom line for HUD homes is that the process, while slightly different in some ways, is very much like buying any other house and your Realtor should be able to facilitate the differences of the process for you.  You can go to the HUD site for more information by clicking here. I would add that the home inspection process is so much more critical with these homes, since so many of the have suffered abuse and are n need of serious repairs. These are not your “DIY weekend with a paintbrush” properties; so exercise extra caution when evaluating the property.  

Monday, April 14, 2014

First Time Buyers - I’ve never had a well before and it scares me a little. What do I need to know?

First, don’t be scared off by the well. Modern wells and well pumps are very reliable and good sources of water; however, there are things that will be different and you need to educate yourself a bit about life with a well. Here’s a link to a great EPA site for reading about wells. 

If you are used to being on “city water” and “city sewer”, life on a well and septic (they normally seem to come together) will be a little different. I’ll cover the septic system separately. Wells come in many different sizes; however the most common these days is the 4” well. That dimension is the diameter of the well casing – the pipe(not the cap)  that you see sticking up out of the ground.  Common well sizes for homes might be 2, 4, 5 or 6 inch wells, with 6” wells most prevalent locally. 

Most wells in this area are what’s called drilled wells. That means that a truck with a big drilling rig (sort of a miniature oil well type drilling rig) actually drilled down through the soil and bedrock to reach an aquifer. It is not unusual in this area for wells to exceed 100’ in depth. The depth of your well is something that the seller should be able to tell you; however, you can also find out the depth from the “Well Log”, which is a document that well drillers are required to file with the County Health Department to show the location and depth and other information about the well.

Here’s a picture of the components of a typical submersible pump well from the WikiPedia site. At the bottom of that well pipe is a
steel screen called “the point”, which serves to let water into the pipe and keep out debris.  Inside the well casing a smaller pipe with an electric pump is lowered to the bottom of the well and it is that pump that actually delivers the water to the house. Inside the house there will also be a large holding tank called the bladder tank, which as the names imply does hold water and does have a bladder in it. The bladder is like a balloon inside the tank and when the well is running it compresses the bladder to maintain a steady pressure.  
Here’s a very detailed technical article from the State of Michigan on wells and well pressure, if you are really interested.

In normal operation, you’ll probably not notice any difference between being on a well and being on city water. Having said that, here are things that are different that you need to know:

Your well is powered by electricity. If the power to the house is out, due to a storm or other cause you will not have water. You will not have water to drink. You will not have water to bathe. You will not have water to flush your toilets. That can become very inconvenient very fast. Many homeowners with wells end up buying standby generators mainly so that they can have water during prolonged power outages.
The water from your well is untreated groundwater from an underground aquifer. It may (almost always does) contain dissolved minerals like calcium and iron. If may contain minerals that make it taste or smell funny – iron and sulfur for instance.  Most homes on wells have water treatment systems built in-line with the holding tank. These systems are designed to remove the dissolved minerals. Most systems also have a dirt filter in-line to remove any dirt that gets past the point at the bottom of the well. Some homeowners go as far as to place reverse osmosis systems in the water line, usually just a special line off the main system that runs to the kitchen for cooking and drinking water. Reverse osmosis systems eliminate everything from the water. It is possible to have the whole house on a reverse osmosis system but that is hugely expensive to do. 
There is no fluoride added to the water anywhere, so if that’s important to you for dental health, make sure you get enough in you toothpaste.
Your well system, while not overly complex, is an electro-mechanical system and components of it can and do fail over time. Submersible well pumps are usually good for 10-15 years, if they are in low sediment content wells. If there is lots of sediment in your water (you’ll know that because you’ll have to change your dirt filter quite often) that will wear out the well pump sooner, maybe in as little as 5-6 years. Depending upon the size and depth of the well, figure on anywhere from $1,500 to $4,000 to replace the well pump.  The second thing that fails most often is the holding tank. It can become “water-logged” which basically means that the bladder (that balloon inside) has ruptured and is no longer functioning to maintain the pressure in the system. You’ll likely notice that the most when taking a shower and feeling the pressure changes as the well pump cycles on and off. 
It is possible for your well water become contaminated by bacteria if the well casing is compromised somehow. The main cause of this is a cracked well cap that allows bugs to get inside and the bacteria that they may be carrying to get into your well water. Don’t worry. This is easy to fix with a well chlorination that any good well company can do.
It is possible that your well could be hit by a lightning strike, especially if it is a steel-cased well. Should theta happen it usually fries the well pump. Fortunately that is normally covered by your homeowners insurance policy, but check to make sure.

If you are buying a house with a well, you should include a well test in the home inspection, as well as doing a water test. A home inspector who tests the well system will essentially do a pressure and well cycling test on the system to see if he can detect any issues with the health of the pump or the pressure tank. I’d only recommend calling in a well company if the inspector suspects a problem from his tests. 

The water test is something that the inspector can do or you can do for yourself. The County Health Department has free water test kits (at least in our area). You take a water sample and turn it in to the Health Department and they will send yo back an analysis of the water if a few days. They look for and report on things like arsenic levels in the water, bacterial levels in the water and levels of nitrates and nitrites. In areas that used to be farms it is not unusual to find higher nitrite and nitrate levels in the water, which is a residual effect of fertilizers and animal waste. Those two won’t normally hurt adults but there are cautions about children and the levels of both. Arsenic is a naturally occurring thing in the water in our area but is usually found in very low and safe concentrations.

Hopefully, I haven’t scared the bejesus out of you with all of this information. For 98% of the time you won’t notice any difference living on well water from your city water days. That 2% difference will involve remembering to change your dirt filter and add salt to your softener and, of course, those times when the power is out to your home. At least you won’t have to worry about the city raising the price of water every year or so.

Friday, April 11, 2014

First time Buyer – What should I know about propane?



Question - We were out looking at house and my agent said that there was a pig in the side yard of one house. I didn’t see any pigs or cows or chickens or anything else. What was that all about?

Answer - You were probably in any area that is not served by natural gas lines and the “pig” that the Realtor® was referring to is a quaint term for the propane tank that he saw in the side yard. Most homes in very rural areas are heated with propane, which is the same stuff that you might be using in your barbeque
If you want to read more than you really need to know about propane, click here to go to the WikiPedia explanation for propane.

So, what do you really need to know? Well you may have seen stories on the evening news that there was a shortage of propane this winter and that prices were high. Heating with propane is more expensive than heating with natural gas. Propane costs per gallon this last winter were running close to that of gasoline and sometimes higher.  Remembering that pig in the side yard, just imagine the bill to have a truck pull up in your yard and fill that sucker up. It can get real expensive.

One thing that you might often see in homes that have propane for heating is that they usually have electric hot water heaters and electric kitchen stoves. It is just too expensive to heat water and cook with propane every day. Many of those same homes may have electric supplemental heating systems or the owners might have installed alternative heating sources, like wood-burning stoves. Corn-burning stoves are also popular out in the country-side.

The cost of propane is market driven and can fluctuate fairly widely depending upon factors like availability and difficulty in delivery. This past winter the state of Michigan took on one of the larger propane suppliers in the state for what it alleged was price gouging. You can read about that lawsuit by clicking here.

Unfortunately when you get out beyond the natural gas pipelines the alternatives that you have are all expensive. You can heat with propane or you can heat with heating oil, if you want to use a liquid fueled furnace/boiler. You can also go all-electric, which many people do with electric baseboard heating systems. As mentioned earlier, you can also go with wood or other biomass fueled stoves or systems. NO matter what you choose, when you get a winter like the one that we just had it is going to get expensive. Click here to read a story about the costs for Michigan residents this past winter.

Should you avoid homes that are heated with propane? You may not be able to. If you have a locale in mind you just need to be aware of the options that you have for heating and fueling other things in your house. Fortunately the infrastructure to deliver those alternatives is in place everywhere, so getting your propane or fuel oil or electricity is not the issue, paying for it is. You should factor those higher costs into your buying
decision and future budget planning.


So, the next time that you’re out house hunting and you see a “pig” in the side or back yard, the “oink” you hear in the back of your mind will be the thought of the increased costs of living there. But, hey, there are advantages to being out there in the countryside with lots of privacy and maybe a little bit of land; so, suck it up and get used to living with your pig. Just try not to feed it your wallet.

Thursday, April 10, 2014

First time buyers - The house has a septic. What’s that?

Many first-time buyers have always lived in an environment where sewers were available or perhaps they just didn't think about where the waste water from their parents’ home went. Now that there are buyers and looking in the suburbs they will often hit homes that are advertised as being on well and septic system.  In the last post we covered having a well as a source of water for a house. In this post we’ll look at where that water is going to end up going.

When you flush the toilet or turn on the shower the water and everything with it goes somewhere. In the city there are sewers to carry the waste water away to a treatment plant somewhere, where it is treated to remove the waste solids and purify the water enough to be released back into a river or lake. In suburban settings you don’t have the sewers to carry the water away, so you have to have your own little treatment facility to deal with your waste water. That facility is called a septic system.
Just like for the well as a system to supply your water; there is really nothing to be afraid of with having a septic system to deal with your waste either. But, just like for the well; there are things that you should be aware of and things that may need attention over time.

It its most simplistic level the septic system consists of a tank with two chambers that is connected to the waste plumbing in your house. The waste water flows into that tank from the house. On the other side of the tank are pipes leading out to what is called the drain field or leaching field. Most of those pipes have holes in them, so that the water in them can flow out into the soil. Those pipes are deep enough to avoid freezing in winter.

So how does this all work? Well, as the waste water and solids flow into the tank, some things float to the surface and some sink to the bottom of the tank. Think of this tank as a big digester for the solids that flow into it. Bacteria in the tank break down or digest most of that material. Some of the stuff that floats to the top gets digested too, but some is made up of things that the bacteria can’t eat. Over time that layer builds up, as may the sludge at the bottom, so it is recommended that the tank be pumped out every 3-5 years. The tank is engineered such that only liquids are supposed to flow into leach field.

In normal operation as the tank fills with liquid eventually it will reach a level within the tank where the leach field pipes exit the tank. The liquid runs out into those pipes and from them into the ground itself where it percolates downward, pulled down by gravity towards the water table. During the process of that percolation the liquid is purified again by bacteria that live in the soil. Eventually that water joins the ground water aquifer at some level underground. Because that aquifer may be the same one that your well is tapping into the two are required to be at least 100’ away from each other. Keep that in mind also when you dispose of hazardous materials or old drugs – do not flush them into your septic system. You may end up contaminating your own drinking water or that of others.

You might see the term “perc test” on listings for vacant land. That means that a test has been performed to make sure that the soil is sandy enough to allow for that percolation process. Clay soils will prevent the liquids from percolating down. In that soil type, special “engineered fields” must be built by digging out large amounts and of the clay and replacing it with gravel and sandy soil (very expensive). Here’s a link to a great EPA article that explains septic fields in much more detail. Print it out and keep it, because it has good advice for living with your septic system – what to do and not to do.

When you are buying a house with a septic system, you should have the septic system tested and the tank pumped out. A good home inspector can do that for you or recommend someone to do it. It adds a little to the inspection cost, but it is worth it for the peace of mind. There are things that can go seriously wrong with septic systems and letting things go to long can result in having to replace the septic tank and field – a very expensive proposition. Regular septic fields can cost $10-15,000 to put in and engineered fields can run upwards of $30-40,000.

As a homeowner you should also be aware of the things that you can do to keep your septic system working properly and the things that you should not do which could shorten its life.  There are great tips for maintaining your system, in the EPA article referenced above.  A well maintained system that is pumped out regularly should last as long as the house; unfortunately many do not because of homeowner neglect or carelessness. For those of you who saw the original movie in the series of films about the Folker family - Meet The Parents – you saw what a failed septic field can do to a yard and a household.

How do I know where my septic tank is located?

Hopefully the seller showed you the location or your home inspector found it as part of the inspection. It is an important thing to know.  If neither happened, you can go to the County Health Department (at least here in Michigan) where location drawings (relative to the house) fields are required to be on file, as well as information about the installation date, tank size and other useful data. That might be especially important if you are considering putting a pool or patio in your yard and don’t want to screw up your septic field in the process. It will also help you to not park on the ground above the field, since that often causes the field pipes to collapse. Also when planting trees in the yard, you don’t want to dig down and hit the field.


Since septic systems are normally paired with wells as the water source, you will also save by not having a sewer charge bill, in addition to no water bill. In the case of the septic you don’t even have an electricity charge; however, remember to budget for that pump out every 3-5 years.

Sunday, April 6, 2014

First Time Buyers – I saw a sign that said Homepath Financing Available. What’s that all about?

First of all it means that you are looking at a foreclosed home that is now owned by Fannie Mae.  Fannie Mae is one of two Government Sponsored Entities (GSE’s) that buy up mortgage loans an package them into investment pools. The U.S. Senate has released the draft of a bill that would do away with Fannie Mae and Freddie Mac (the other GSE) and move the functions they have been performing to the new Federal  Mortgage Insurance Corporation. Both GSE’s are currently owned by the government as the result of having gone bankrupt during the great recession.

HomePath Financing, available only on Fannie Mae-owned properties, offers great benefits — a 5% down payment , no lender-requested appraisal and no mortgage insurance, expanded seller contributions, and more. There are HomePath Mortgages available for move-in ready properties for both owner occupants and investors. You also can use the financing of your choice from any lender, such as your local bank, credit union or other financial institution. The institution has to be a participant in the Fannie Mae program and accept the rules of the program.

Freddie Mac has a similar program called HomeSteps Financing that is only available in ten states. HomeSteps Financing is available in Alabama, Florida, Georgia, Illinois, Kentucky, North Carolina, South Carolina, Tennessee, Texas and Virginia. For more on the Freddie Mac program, click here.
If a HomePath home is not move-in ready and needs work, maybe before it can even be occupied, the HomePath Renovation Mortgage provides both the funds to purchase and to renovate in one loan. HomePath Renovation Mortgage allows a buyer to purchase a property that requires light to moderate renovation. The one loan amount includes both the funds for the purchase and renovation — up to 35% of the as completed value, no more than $35,000. As with FHA 203(K) loans, there are requirements and rules and the projected end value must be supported by an appraisers opion.

While these programs are available for both owner-occupant buyers and investors, Fannie Mae does give the owner-occupant an advantage, since they are trying to encourage individual home ownership over investor ownership. Owner-occupant buyers are given a head start through a program called First Look, which means that for the first two weeks of the listing only buyers who are going to live in the home are allowed to bid on it (similar to the HUD program for owner-occupants).

This is a great program if you can find the right property. In addition to the lower mortgage rates that are offered, the savings from having no PMI can make a big difference. Currently Fannie Mae also has a program in place to assist with closing costs, up to 3.5% of the purchase price. That program will go away shortly, unless Fannie Mae extends it. . Click here to download a PDF file with all of the details of the HomePath program.

So, is this a great deal for you? Well, that depends. If you can find one of those move-in ready homes it could be; however most of the HomePath homes, at least in this area, are in fairly sad shape. They may have mold from broken pipes as the result of our hard winter, or they may have been stripped by the previous owners or by vandals. Most have multiple issues that will need to be addresses and most will need those repairs before you can even live in them.  That scares off a lot of mortgage companies, so your choices for a mortgage may be limited.


The other thing to consider is how you will get that work done and making sure that you have a good handle on the costs involved. A common mistake is underestimating the cost and the time and running out of both before the house is ready to occupy. Most Fannie Mae homes that qualify for the HomePath program need much more than a few weekends with a paintbrush; so don’t get in over your head just because it initially looks like a good deal. If you have the wherewithal, the tools and skills and the time to take on the projects that the home will require it is a good deal. Good luck with your HomePAth house.

Friday, April 4, 2014

First time buyers – Why not just call the name on the yard sign?


Question - I see the listing agent’s name and phone number on the sign in front of a house that I like. Wouldn’t I get a better deal by going through him/her?

Answer – The short answer is no, you probably won’t get a better deal. You may make that agent very happy, since he/she would get what is called a double dip (both sides of the commission) but that doesn't necessarily mean that they work out a better deal for you on the sale.

Remember who that real estate agent works for. He/she has signed a listing agreement with the seller. Because of that they owe their fiduciary responsibility to the seller. They don’t have any obligations to you at all; however, they are obligated to tell the seller anything that they learn about you or from you in your discussions with them. Don’t you think that may put you at a disadvantage later when you are trying to negotiate the price or terms?

Speaking of negotiating; the seller’s agent is contractually bound to negotiate on behalf of the seller, to try to get the best deal possible for the seller. Who, in this call-on-the-sign scenario, is negotiating for you? That’s right; you are out there by yourself when negotiating with the listing agent. Negotiation is a process in which any little piece of information about the opposite side is potentially valuable and can impact things greatly. So, do you want to just hand the keys to the process to the other side?

How bad could that be? Well if you started out by calling on the sign and visiting the home with the seller’s agent, you probably wouldn't stop there. After all, they are probably really nice and
may seem to be really interested in you, so maybe you talk with them the whole time.  You may drop a hint to him/her about the maximum that you are willing to go to get the house or how much you have saved up for the down payment and closing costs; or, maybe you just casually mention that you have to find a place quickly because your lease is up in two months. Don’t you think those little tidbits might help the seller in his negotiations with you? Do you really believe that the seller’s agent, the agent that owes his fiduciary loyalty to the seller, is not going to tell the seller those things? What color is the sky in your world?

If you do call on the sign and happen to get an honest and ethical listing agent, he/she will tell you that they represent the seller and perhaps recommend someone else in their agency to help you. They will at least explain the concept of agency to you and what that means in terms of where their loyalties must be for this house. Depending upon the state that you are in they may explain any options that are available to them and you for them to act as dual-agents, representing both parties in the deal. Michigan is a Designated Agency state, so this is a big deal for us here.

In Michigan an agent must have a signed Agency Agreement with either the Seller or the Buyer. That Agency Agreement spells out in great detail the duties that are owed to the seller or buyer by that agent. There are also provisions that allow dual-agency to happen; but, it is a bit cumbersome and requires that the seller first agree to release the listing agent from his fiduciary responsibilities for the deal with this buyer. The agent then really just become a paperwork facilitator and is not able to negotiate on behalf of either side. Dual agency is rarely used because it is cumbersome and because most sellers don’t want to give up the fiduciary loyalty of their agent. Besides that, the listing agent was probably already privy to confidential information from the Seller and how does he/she now handle that? It’s a slippery slope that most Realtors® do not want to step out upon.

But let’s assume for the moment that you are not in a Designated Agency state. Even in that case there are reasonable expectations that any client should have and probably Real Estate Laws in every state that define what the parties in the deal can expect from their licensed real estate agents. These should include keeping the secrets of the party that they represent and negotiating on behalf of that party. They also include putting the interests of the client that they represent above their own interests. Nowhere in there will you likely find anything about getting you, the buyer, a good deal if they represent the seller.

So, you may ask, why is their name and phone number on that sign to begin with? The main reason is that it’s advertising for them. They hope that other would-be sellers see their name and call that number to list their house, too. It might also help a buyer’s agent by giving them someone to call directly to ask questions about the house. It does serve a purpose to have their name and phone number there on the sign, but that purpose for it being there is not about you, the buyer.

So, when the listing agent’s phone rings and someone on the other end says, “Hey, I was driving by this house and saw your name and number; can you show it to me?”; the answer
should be, “Well, I’m the listing agent for that house, so I represent the seller; but, I can find someone else in our office to show it to you if you’d like.” If instead you (the buyer) hear the sound in the listing agents voice of “ Yes- cha-ching!”; that is the listing agent counting his commission from a double dip opportunity that you just tossed him.  Just hang up and go get a Realtor® to represent you. You will be better off in the long run.

This whole issue won’t come up if you just start out by getting a good buyer agent – a Realtor® - to work for you and to represent you in any offers and negotiations. I posted here about the things that you should do before you start looking in a post in February that is meant for all buyers. Click here to read that post. You may want to read the entire 10-post series for Buyers, since that advice applies whether you are a first time buyer or have bought lots of houses.

The point of this post was not to denigrate listing agents. They are performing a needed and valuable task; but the point is that they work for the seller. You need an agent working for you. Buying a house isn't a fun and games process like buying a car. Most people know how fake that process is and how to play that game, now. Buying a house is the biggest financial decision most people ever make in their lives. It is a game that you are not qualified to play in alone. It is a team effort. Why would you choose to play 1 against 2 in this game? Get your own Realtor partner and then go for it.

Thursday, April 3, 2014

First time buyer – Should I buy with my boyfriend/girlfriend?

Question - My girlfriend and I are thinking about buying a house together. What should I know about that?
Let’s assume that this is a significant relationship, maybe even with plans to get married someday. At least that’s the plan for now. If you were already married this would be a no-brainer; however, couples who are
not married need to think this through and plan ahead for both the good and bad that could happen in the relationship. It sounds like a good plan to have a place all ready to move into as a married couple; however, there are things that you need to at least plan for and not all of them are pleasant. The first is how the two of you will hold title to the property before you get married.

When married couples buy property the deed is usually written with the definition of the ownership rights (also known as Tenancy) called Tenancy by the Entirety. This is a type of joint ownership with rights of survivorship that's recognized in some states and can only exist between a husband and wife. Either spouse can withdraw the funds from an account without the knowledge or permission of the other spouse. However, with real estate, in most states the property can't be sold or mortgaged without the consent of both spouses. When one spouse dies, ownership of the property automatically vests in the surviving spouse without the need for probate.

In Michigan it is possible for either a married man or woman to buy real estate without the permission of their husband or wife; however, a man cannot sell that property without his wife’s consent. Michigan has a concept called Dower Rights, which protects the interests of the wife by requiring that she agree to the sale of the family home or any other real estate that he may own or that they jointly own. That grew out of the unfortunate practice some time back of men selling off the home, unbeknownst to their spouse, and then abandoning the family.  No such protection is afforded the husband under Michigan law if the real estate is in the woman’s name and she decides to sell it. Go figure.

When an unmarried couple buys real estate the title is usually made out n one of two ways – with either Joint Tenancy with right of survivorship or Tenancy in Common.

Joint tenancy with right of survivorship - With this type of ownership, all of the owners hold an equal right to the property. In other words, any owner can withdraw the funds from an account without the knowledge or permission of the other owners. However, with jointly owned real estate, in most states the property can't be sold or mortgaged without the consent of all of the owners. When one joint owner dies, ownership of the property automatically vests in the surviving joint tenants without the need for probate. So if one of the two of you died, the other partner would get ownership of the entire property. There would be no way to pass on your piece of the ownership to an heir or other family member; however, many couples choose this method of ownership.

Tenancy in common - With this type of joint ownership, each individual "tenant in common" owns a specific percentage of the property and can withdraw, mortgage, or sell his or her own separate piece of the property. When a tenant in common dies, his or her share of the property passes to his or her own beneficiaries and not to the surviving tenants in common. This type of ownership does allow you to pass your ownership portion on to your heirs or to other family members. This is also a commonly used method of titling real estate for unmarried couples. In most cases, unless otherwise provided for, the ownership for a couple would be considered to be a 50-50 split.

There are drawbacks to this form of tenancy, too. Let’s say that you are living together and have a child together; then, something happens to your spouse-to-be. You could find yourself in the situation where the heirs of your partner decide to sell off the portion that they just inherited. All of a sudden, if you can’t afford to buy them out of that portion; you may have to move out. It doesn't matter that you believe that your partner would have wanted you to have the place for yourself and your child. The probability of facing something like that happening increases the longer that you live together unwed. It can be especially bad if you have a strained relationship with your partner’s family.

There is also Community property - This is a type of joint ownership that's recognized in some states and can only exist between a husband and wife. Each spouse's ownership rights in community property are set by specific state laws. Those same state laws may deal with common law marriages which can occur once a couple has lived together in an unwed state for a specific period of time. That varies by state.
So, let’s get back to what you should do. Most lawyers would probably advise you to have a pre-nuptial agreement in place that specifies how you want this issue dealt with, especially should anything occur that causes you to have to unwind the relationship and divide things up. This would also be especially important if you had children from a previous marriage. You would want to protect them and their interests, should anything happen to you.

If you held the property as joint tenancy with rights of survivorship and  you broke up and then passed away before the property was sold and the proceeds split or if you just passed away before the wedding; your children would get nothing or certainly have no claim to the property or proceeds of a sale.
If, on the other hand, you held the property as Tenants in Common, your children would inherit your half, if something happened to you. They would have a claim on the property and any proceeds from a sale. The same would be true of your immediate family, if you did not have children. You mom and dad might inherit your share.

Once you do get married the tenancy changes to reflect that state of affairs and you have tenancy by entirety.

I know that it doesn't sound very romantic to discuss things like tenancy, pre-nuptial agreements and one of you dying; but you are about to take a big step into the adult world with this partner, so you might as well get started by doing the right, adult thing at this point. This won’t be the last time that you have to deal with stuff together that isn't all lovey and pleasant. If you want to read more about this topic, in excruciating legal detail, here’s a link to a legal site.

Buying with a boy or girl friend can get a little complex from the mortgage standpoint, too; since both of you will be evaluated for the loan. It can get particularly difficult if one of the two of you is self -employed and does not have a steady income stream. That happens a lot these days with men being in business for themselves in lawn care or other services businesses or being employed part time in businesses that use 1099’s to pay them. You should be ready to share at least the last three years of your tax returns. Check with your lender about the process and follow his/her advice on that.


The best advice is probably to wait until you are married; however, failing that, then heed the advice that the referee gives the boxers in a match before the initial bell – protect yourselves at all times.

Tuesday, April 1, 2014

First Time Buyers – Can I buy a house with little to nothing down?


Question - I want to buy a house but I don’t have enough for a down payment. Are there programs that could help me?

First, let’s establish whether your desire to buy a house is realistic. What is your credit score? If you don’t know, go find out. There are places that you can go to get your credit report and your credit score free. If your credit score is below 640, don’t worry about buying a house right now; worry instead about fixing your credit. It will probably be a year or two before you are ready to buy a house, depending upon how damaged your Credit Score is right now. There are some programs that will deal with people with scores as low as 580, but most of them carry onerous rates or have other requirements that are difficult to live with.
If your credit is OK and the only thing holding you back is the lack of down payment money, there are several programs options o explore -

If you happen to be a military veteran and you haven’t used your VA benefits already, then check out the programs available through the VA for zero down payment home purchases. There are restrictions and Click here to go to the VA site and rad more about using a VA zero down loan. One caution with VA loans, at least in Michigan, is that any condo or site-condo complex that you may be interested in has to be VA approved. Click here to go to the VA site where you can determine of the complex that you are looking at is on the approved list. There is no way to get a complex on the list after construction is finished. Your mortgage rep should have information on VA programs that his company supports.
requirements, but it’s a great program.

If you are an active duty member of the U.S. Navy, there is a program available to you through the Navy Credit Union. Navy Federal Credit Union, the nation's largest in assets and membership, offers 100 percent financing to qualified members for buying primary homes. Credit union eligibility is restricted to members of the military, some civilian employees of the military and U.S. Department of Defense, and family members.
Navy Federal resumed zero-down financing in 2010 after a hiatus of a couple of years. The credit union's zero-down program is similar to the VA's. One difference is cost: Navy Federal's funding fee of 1.75 percent is less than the VA's funding fees. Click here to read more about that program.

If you are not a veteran, but you are looking in a rural area (more areas than you might expect qualify for that designation), the USDA has a program under its Rural Development Program that allows a buyer to buy with zero down. Yes, this is the same USDA that inspects our meats and other foods. The Rural Development Program for mortgages in under its jurisdiction because it was initially aimed at the rural area where farms are located (or at least that is the best explanation hat I could come up with). As might be expected, this program has restriction and requirements, too. You can click here to read about this program and to see fi the area that you are interested in is classified as rural and whether you qualify for the program. You’ll first have to choose a state, because the definitions for rural vary by state. Check with your mortgage rep to see if that company does USDA loans.

Finally, if you live in Michigan you may qualify for a down payment assistance loan through a program run by
MISHDA – the Michigan State Housing Development Authority.  This is a program that provides interest free loans to qualified home buyers so that they have the money to make the required down payment or pay their closing costs. Here are some bullets to explain the program:
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  •       Available with MSHDA's FHA or Rural Development first mortgages (so yu can team it up with the USDA Program for really low mortgage rate).
  •        Funds may be used for down payment, closing costs, prepaid/escrow expenses and a home inspection performed by a qualified home inspector
  •       Zero-interest, non-amortizing loan with no monthly payments
  •        The loan is due upon sale or transfer of the property or if the first mortgage is refinanced or paid in full

Obviously this program, as do all the others mentioned before, has its requirements and restrictions. Click here to read about the MISHDA Program or click here to hear about it from the MISHDA Down Payment Fairy. To see if your state may have a similar program, click here to go to the web site of the National Council of State Housing Authorities.

One option that doesn't involve any help from government agencies is to get a gift from Mom & Dad. With that gift you could look at any of the financing options – Conventional, FHA, USDA and VA; however there are strict underwriting rules about gifts. Click here to read a fairly comprehensive article about gifts for this purpose. It may initial seem like a lot of hassle; but these rules were put into place because of a lot of fraud back in the Great Recession; so, you’ll just have to live with them.


So there it is. The answer to your question is yes (if you qualify and can meet the requirements). Don’t even ask if you can buy a house with zero down and bad credit – that ain't gonna happen in today’s market.  But, if you have good credit and just don’t have the necessary down payment together right now; that doesn't mean that you can’t buy a home. Talk to your mortgage lender about these programs and see if you qualify. If your current lender says that they don’t do these programs, find one that does.