It's the season for many first time, and move-up, home buyers to look for a new home.
Las Vegas’ housing market still has good opportunities. Mortgage rates do remain relatively low. The majority of homes for sale in Las Vegas are currently short sales, followed by traditional Sellers. Foreclosures have been slow to come on the market but an increase in available bank owned homes is expected in the third quarter of 2014.
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Banks have high hurdles for borrowers to obtain a mortgage, conditions that are particularly tough for would-be first-time buyers and younger families. For those applying for an FHA loan, applicants' FICO scores are required to be 580 or better to qualify for the lowest available down payment advantage, which is currently 3.5%.
Many lenders will not provide financing with that low a score without some type of "add-on." Add-on refers to how the loan is priced to the consumer and for yield return to the lender. This has been a common practice by mortgage lenders for many years, not just since Dodd-Frank or since QM (Qualified Mortgages) came into the mortgage lending arena.
To be a Qualified Mortgage, the loan:
Cannot have excessive upfront points and fees; Cannot be longer than 30 years; Cannot have certain risky features, such as paying only interest and not principal, or paying less than the full amount of interest so that the total debt grows each month; and Must be in one of three categories: 1. The monthly loan payment, plus the borrower’s other debt payments, does not exceed 43 percent of the borrower’s monthly income; or 2. The loan qualifies for purchase or guarantee by a government sponsored enterprise (Fannie Mae or Freddie Mac), or is insured or guaranteed by a federal housing agency; or 3. The loan is made by a small lender that keeps the loan in portfolio.
The Ability-to-Repay rule is intended to prevent consumers from getting trapped in mortgages that they cannot afford, and to prevent lenders from making loans that consumers do not have the ability to repay.
A 30-Year Fixed-Rate Mortgage Is Still At Historic Lows: The payment on a $200,000 30-year Fixed-Rate Loan at 4.375% and 70% loan-to-value (LTV) is $998.58 with 1.75 points due at closing. The Annual Percentage Rate (APR) is 4.599%. Payment does not include taxes and insurance premiums. The actual payment amount will be greater. Some state and county maximum loan amount restrictions may apply.
Below you'll find some terms that you've probably heard before and also some explanations about closing costs fees you may be paying when you take out a home loan.
Mortgage Loan Closing Cost Information:
Loan Origination Fee
This covers the administrative expenses in setting-up and processing the home loan. The loan origination fee may be a percentage of the mortgage amount. Not all lenders charge this fee so be sure to inquire about it. If a lender does charge this fee then you should not see a loan processing, closing doc prep, or tax service fee on your Good Faith Estimate.
An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1.00% of the mortgage amount. For example: on a $200,000 loan, 1.00 point would equal $2,000. Compare the interest rate with 1 point versus an interest rate and no points and check if there is a major difference in the monthly payment before you pay the points.
The fee for having the house appraised may be incorporated into the closing costs or payment may be required by the lender at the time the loan application is submitted. Many times a lender will charge an application fee that will be applied to the cost of the appraisal, be sure to inquire if this cost is to be applied to any of your closing costs charged by the lender.
Credit Report Fee
The lender uses a credit report to help determine the creditworthiness of the loan applicant. This fee is often paid when you apply for the loan as the credit report is an important first step in the loan qualification process.
Odd Days of Interest Payment
Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and the end of the month. For example: if the closing is on May 15 then you will be charged interest from May 15th to May 31st. However, your first mortgage payment will be due July 1st, not June 1. Under Federal law all interest on a home loan must be paid in arrears. That means when you pay the July 1st payment you are actually paying the June interest in arrears. "All" mortgage home loan payments are due on the first of the month and typically are late after the 15th.
At closing, if you are paying your real estate taxes and insurance in your monthly payment, an escrow account will be set up to pay these items at their future due date. Most state laws require the actual amount collected be enough to pay the full annual amount on the actual due date, plus two months as a "cushion." These monies are not charged interest nor do they earn interest. They are simply added to your payment in order for the lender to pay the amounts when they come due.
Real Estate Tax Closing Costs
This is the one closing cost that is prorated between the buyer and seller. If the seller has already paid the annual property taxes, the buyer typically reimburses the seller for the period in which the buyer will be occupying the property. Likewise, if the taxes have not yet been paid, the seller typically reimburses the buyer for the period in which the buyer occupies the property. For example, if taxes for the year you purchase are due December 31st and you close on June 30th, then the seller's closing statement will show a credit to the buyer for real estate taxes from January 1st through June 29th - the days the seller actually occupied the property.
State Required Fees - Varies by State
Documentary Stamps on Deeds, State Tax required on all deeds or other documents used as conveyances.
Mortgage Documentary Stamp Tax on Notes, State Tax required on all new and assumed mortgage notes.
Insurance Closing Costs
This insurance covers replacement costs for damages caused by fire, wind or other disaster that might affect the value of the property. Typically, the insurance also includes personal liability and theft coverage. Additionally, you will be required to pay one full year of coverage at closing.
Flood Insurance - If Required
Additional hazard insurance coverage that is required for homes located in a designated hazard zone as established by the Federal Emergency Management Agency (FEMA).
Private Mortgage Insurance - PMI - If Required
Insurance required for conventional mortgage loans when the borrower's down payment on the house is less than 20% of the loan value. It is typically calculated in 5.00% increments, e.g., 95% loan to value; 90% loan to value.
Title insurance is an indemnity policy that protects against financial loss that might arise from issues with the previous ownership of a home or property. Homebuyers and lenders who purchase title insurance are assured protection in the case that a title is later found fraudulent or for any reason invalid, thus safeguarding the financial investment in the property. Since homes often pass through several iterations of ownership, it could be difficult to ascertain every aspect of a property’s history; title insurance eliminates an owner’s vulnerability to claims lodged against the property by anyone previously associated with it. This insurance policy protects both the buyer and lender by insuring a clear chain of title. It insures that that the person who sells the house has the legal right to do so.
Transfer Taxes and Recording Fees
This is the cost for transferring ownership of the property and recording the purchase documents with the county.
Title Closing Fee
This is the cost for the title company conducting the escrow closing.
By no means is the information above complete, but it addresses the most common questions that first time home buyers, move up home buyers/borrowers may find helpful.
If you are currently a Homeowner and are thinking of selling your home, now is a great time! Whether you are a Seller with equity or one of the many homeowners behind on their mortgage who needs to sell through the short sale process, we can help you get your home sold for the most money possible and in the shortest amount of time.