This video explains how and why Honolulu interest rates may move higher this year.

The Federal government enacted three separate initiatives during the last eight months designed to help the home buyer make better financing decisions.  These initiatives impose requirements that impact the loan closing timeline and affect the closing process for lenders and settlement agents.  The three initiatives are:

May 2009 Home Valuation Code of Conduct (HVCC) - ensures borrowers have sufficient notice of appraisal content and promotes the accuracy of appraisals by shielding appraisers from undue influence.

July 2009 Housing and Economic Recovery Act / Mortgage Disclosure Improvement Act (HERA / MDIA) - protects borrowers by making them more informed and confident in their home financing choices by specifying timing in regard to initial disclosures, fee collection and final disclosures.

January 2010 RESPA (Real Estate Settlement Procedures Act) Reform - intended to help borrowers avoid surprises at closing by placing tolerance levels on all charges for services associated with obtaining the mortgage where the vendor is not selected by the borrower.

Bottom line, if you are financing your home purchase, these new procedures make 30-day closings a thing of the past.  45 days will become the standard time to close.

More details about RESPA Reform

Contact Michael Zimmerman if you need a referral to a reliable mortgage professional.

The Federal Housing Administration (FHA) announced home loan changes that will become effective April 5, 2010.  The measures are intended to help the FHA better manage its risks, while continuing to provide affordable, responsible mortgage products that will support the housing market’s recovery.

Here’s what’s changing:

1.  Increased mortgage insurance.  The mortgage insurance premium will increase from 1.75% to 2.25%.  This change will add some cost to purchasing a home, but will not overburden consumers since the mortgage insurance is paid over the life of the loan, rather than upfront at closing.

2.  New down payment and credit score requirements.  Buyers who have a credit score of at least 580 may still be able to purchase a home with a 3.5% down payment, but those with credit scores less than 580 will be required to put down at least 10%.  This change is designed to help the FHA balance its risk, while providing affordable down payments for consumers with good credit history.

3.  Reduced seller concession.  Home sellers may offer the home buyer 3% to help defray closing costs, as opposed to 6% under the previous policy.

To find out if an FHA loan is right for you or if an FHA loan is even possible on property you’d like to purchase, contact Michael Zimmerman for referral to a great mortgage professional.

An article in Newsweek titled If You Don’t Buy a House Now, You’re Stupid or Broke reminded me of a blog post I wrote in June 2008 titled Should I Wait for Honolulu Home Prices to Drop?

The main point of both articles is this:  interest rates may have a greater impact on what you ultimately pay for a home in the long run than small changes in the initial purchase price.  Put another way, a .50% rise in interest rates costs you more than the $10 or $20 thousand you might save by waiting to purchase your home.  Also, don’t forget to factor in the potential loss of the tax credit offered by the government.

Looking at it from the buyer’s affordability perspective, a trusted Honolulu mortgage advisor wrote, “if rates go up by .50%, [the buyer] can afford a property that is 5% lower in price.”

Each individual home buyer’s situation is different and he/she must decide what is best for him/her.  If you’d like a free consultation or referral to a great mortgage professional, please contact Michael Zimmerman.

In the second week of December, the Federal Reserve (Fed) reiterated that their Mortgage Backed Security purchase program will end on March 31, 2010.  This program helped keep home loan rates low in 2009.

History has shown that when the Fed keeps rates too low for an extended period of time, this usually leads to higher inflation.  If the accommodation is removed too early, it can derail an already fragile recovery.  The Fed continues to walk this fine line, trying to get it just right.

Why is this Fed decision significant?  Let’s look at a few numbers to get an idea.  The Fed will purchase an average of $11.5 billion of securities each week through the end of the buying program.  This is less than half of what the Fed was buying regularly throughout 2009 and a third less than the Fed has been buying in recent weeks.

It’s a matter of simple economics.  When there is abundant supply and diminishing demand, the price of an item (in this case, it’s Mortgage Backed Securities) will subsequently go down.  When Bond prices start to decrease from the Fed’s diminished demand, home loan rates will likely rise.

 
Contributed by Michael Zimmerman
Direct:  808-457-9683
Michael@Michael-Zimmerman.com
www.Michael-Zimmerman.com
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A few more flood insurance questions are discussed below.

How much will flood insurance cost?

Flood insurance premiums vary, depending upon the date the building was constructed and the degree of risk of flooding.  To get a quote, please contact your insurance agent.  If you don’t have an agent, you can contact the National Flood Insurance Program for a referral at 1-800-427-4661.

When is the best time to buy flood insurance coverage?

Now.  There is a 30-day waiting period for flood insurance coverage to become effective.  If flood insurance is purchased in connection with a mortgage loan, there is no waiting period.

What is a Special Flood Hazard Area (SFHA)?

These are the areas with the highest risk for flooding, shown on the Flood Insurance Rate Maps as Zones A or V.

Over a 30-year mortgage, homes in these zones have a 26% chance of being flooded.

How will I know if my home is in an SFHA?

Check with your local community or to order copies of maps of your area, call 1-800-358-9616.

Lenders will notify borrowers if flood insurance is required as a condition of the mortgage loan (National Flood Insurance Reform Act of 1994).

For more information about the National Flood Insurance Program and flood insurance, visit FloodSmat.gov or contact your insurance company or agent.

Read Part 1

Disclaimer: The discussion above is based on FEMA’s publication titled Questions & Answers About Flood Insurance for Real Estate Professionals.

Contributed by Michael Zimmerman
Direct:  808-457-9683
Michael@Michael-Zimmerman.com
www.Michael-Zimmerman.com
Subscribe via email to Honolulu Real Estate and Community News
Subscribe via RSS to Honolulu Real Estate and Community News

Why is flood insurance important?

Homeowner’s insurance policies do not cover flooding, so you may be required to purchase flood insurance separately.  If your home is in a designated Special Flood Hazard Area (high risk), the mortgage lender must, by law, require you to buy flood insurance as a condition for receiving a Federally backed loan.

But, even if you are not required by law to buy flood insurance, you should consider it because you do not need to live near water to be flooded.  In Hawaii, floods are caused by storms, hurricanes, and water backup due to inadequate or overloaded drainage systems, dam or levee failure, new construction, etc.

It is not just high-risk areas that are flooded.  Nearly 25 percent of all flood insurance claims come from medium- or low-risk flood areas.

Relying on Federal disaster assistance is not the answer.  Federal disaster assistance is available only if the President declares a disaster.  Even then, disaster assistance is often a loan that must be repaid, with interest, in addition to mortgages, other loans, and credit card debts.  Flood insurance pays even if a disaster is not declared.

Who can purchase flood insurance?

Anyone in a community that participates in the National Flood Insurance Program can purchase building and/or contents coverage, with a few exceptions.  Coastal Barrier Resources System (CBRS) areas, Otherwise Protected Areas (OPAs) and buildings principally below ground or entirely over water are not eligible for National Flood Insurance.

How do you obtain a flood insurance policy?

You can purchase National Flood Insurance from private insurance companies and agents.  Currently, there are over 100 insurance companies that sell National Flood Insurance coverage, in addition to some 60,000 independent insurance agents.

If the seller of the property has flood insurance coverage on the building, it’s possible that policy can be assigned to the buyer at the time of closing.

If the mortgage company requires flood insurance as a condition of the loan, the lender may escrow flood insurance premiums.

For more information about the National Flood Insurance Program and flood insurance, visit FloodSmat.gov  or contact your insurance company or agent.

Read Part 2

Disclaimer:  The discussion above is based on FEMA’s publication titled Questions & Answers About Flood Insurance for Real Estate Professionals.

Contributed by Michael Zimmerman
Direct:  808-457-9683
Michael@Michael-Zimmerman.com
www.Michael-Zimmerman.com
Subscribe to Honolulu Real Estate and Community News

First, a disclaimer.  Foreclosure is a very complicated process with far-reaching results.  I cannot stress this enough:  consult your lenders, your attorney, your CPA and your real estate professional to ensure you fully understand all ramifications of the options discussed below.

In the first part of this post, I wrote that some homeowners have faced difficult choices as the economy declined.  Rather than lose your home through a contentious bank foreclosure, some of the options below may be a better choice, depending on your individual situation.

Forbearance or Repayment Plan – the homeowner negotiates repaying back payments over a period of time.  Usually, the owner makes the current payment as well as a portion of the overdue payments.  Most lenders require homeowners to be qualified for this option.

Deed in Lieu of Foreclosure - also known as a “friendly foreclosure” because it allows a homeowner to return the property to the lender.  It requires lender approval and the homeowner must vacate the home.

Bankruptcy – if you have non-mortgage debts whose payments are causing you to fall short of paying the mortgage, a personal bankruptcy may eliminate some or all of these debts.  However, bankruptcy can be very costly and is not as easy to accomplish as it once was.

Read Part 1

First, a disclaimer.  Foreclosure is a very complicated process with far-reaching results.  I cannot stress this enough:  consult your lenders, your attorney, your CPA and your real estate professional to ensure you fully understand all ramifications of the options discussed below.

As the economy declined during the last year, homeowners faced many difficult choices.  Regrettably, some are staring at the devastating prospects of foreclosure.  Foreclosure can be avoided in certain instances.  In the first part of this post, let’s address a few of the less drastic options. 

Rent the Property - if the mortgage payment is low enough that market rent will cover it, this option will allow you to retain your property indefinitely.

Refinance – If you have sufficient equity in the home and your credit is still good, refinancing is a possibility.  Given today’s interest rates, refinancing should lower your payments, but it may be an expensive process.

Service Members Civil Relief Act (Military Personnel Only) – If an active duty member of the military is in financial distress, they may qualify for lower payments on all their consumer debt as well as mortgage payments.  Read more about the Service Members Civil Relief Act.

Mortgage Modification – with this option, the loan’s interest rate or principal balance is reduced by the lender.  The result is a lower, more affordable payment for the homeowner.  Owners must qualify for this option and are required to supply all necessary documentation to the lender.

Contact Michael Zimmerman if you need a referral to a reliable Property Manager or a great mortgage professional.

Read Part 2

From the Internal Revenue Service’s point of view, if someone forgives a debt you owe them, the canceled amount may be taxable income.

In December 2007, Congress passed the Mortgage Forgiveness Debt Relief Act.  Under regular circumstances, when a lender forgives all or part of a borrower’s debt, the forgiven amount is considered income and the borrower is taxed on that amount.  This law offers relief to the homeowner in that it extends relief for three years, covering debts discharged through 2012. 

This law is extremely important to those considering a short sale.  Amendments have been made to remove tax liability and allow the borrower and lender to work together to find a common and beneficial solution for both parties.  The Act’s debt relief provisions apply only to primary residences and the exclusion is limited to $2 million per year.

Visit the IRS web site for more details on the Mortgage Forgiveness Debt Relief Act.

First, a disclaimer.  I cannot stress this point enough: consult your attorney, your CPA and your real estate professional to ensure you fully understand all ramifications of a short sale.

In just the last two weeks, I have received phone calls from three people who were considering a short sale.  Each has his/her own reasons for investigating the possibilities.  The usual reasons include large negative monthly cash flows and a desire to avoid foreclosure.  Here are three things many lenders look for when considering a short sale request:

• Financial Hardship - is there a verifiable reason that has or will cause you to miss a payment.  Examples that qualify are mortgage payment adjustment, a job loss, too much debt or a business failure.
• Monthly Shortfall – lenders need to be convinced that you cannot afford to pay your mortgage.  You will be required to provide a financial worksheet that demonstrates this fact.  The shortfall equation is simple:  total monthly income – total monthly expense = monthly shortfall.
• Insolvency - you must be able to prove that you owe more than you have in cash.  Insolvency can be proven in many cases, even though you may still have some money for living expenses.

As I wrote in parts 1 and 2 of this series, government mortgage loans are becoming more and more popular because funds from conventional sources are very hard to obtain.  In the final part of this series, we’ll highlight Rural Development mortgages provided by the U.S. Department of Agriculture (USDA).

Here are the major points of a USDA mortgage loan:

• No down payment required, 100% financing is possible
• 2% USDA funding fee may be financed
• Loan limits vary
• No mortgage insurance is required
• NOT limited to first-time homebuyers
• Owner occupants only (no loans on second homes or investment properties)
• Minimum credit score is 620
• Cash reserves are not required
• Maximum income limited to $109,000 in Honolulu for a family of 1-4
• Maximum income limited to $144,400 in Honolulu for a family of 5-8
• Home must be in a rural area (not vacant land)
• Subject to Federal funds availability

Part 1:  FHA Loans

Part 2:  VA Loans

Please consult your Honolulu mortgage professional if you have questions.  Contact Michael Zimmerman if you need a referral to a great mortgage advisor.

As I wrote in part 1 of this series, the Nation’s financial crisis caused several liberal sources of home financing to disappear.  No one knows if they will return.  Today’s complex loan guidelines make conventional loans more difficult to obtain, so government loans are becoming a more popular source of mortgage funds.  In part 2 of this series, we’ll cover loans provided by the Veteran’s Administration (VA).

Here are the highlights of a VA mortgage loan:

• For veterans and service persons only
• No down payment required, but if made, 100% of the down payment may be a gift
• Maximum loan amount is $783,750
• No mortgage insurance is required
• Owner occupants only (no loans on second homes or investment properties)
• Minimum credit score is 620
• VA funding fee paid at closing and may be financed
• Cash reserves are not required
• Condos must be on the FHA or VA Approved Condo List
• There are no condo owner occupancy requirements

Part 1:  FHA Loans

Part 3:  USDA Loans

Please consult your Honolulu mortgage professional if you have questions.  Contact Michael Zimmerman if you need a referral to a great mortgage advisor.

The Nation’s financial crisis caused several liberal sources of home financing to disappear in a very short time.  Those sources may return some day, but they’re gone, at least for the near future.  Loan qualification guidelines are more difficult and complex than ever and down payments required to get the best interest rates on conventional loans are much higher than they were six months ago.  Consequently, government loans are becoming a more popular source of mortgage funds.  In part 1 of this series, we’ll cover loans provided by the Federal Housing Administration (FHA).

Here are the highlights of an FHA mortgage loan:

• Down payment required is just 3.5% !!
• 100% of the down payment may be a gift
• Owner occupants only (no loans on second homes or investment properties)
• Non-occupying co-borrowers are allowed (example:  a parent helping their child buy a home)
• Minimum credit score is 620
• Maximum loan amount is $793,750
• Cash reserves are not required
• Condos require at least 51% owner occupancy and they must be on the FHA Approved Condo List (getting on the list is a lengthy, difficult process)

Part 2:  VA Loans

Part 3:  USDA Loans

Please consult your Honolulu mortgage professional if you have questions.  Contact Michael Zimmerman if you need a referral to a great mortgage advisor.

For those who’ve owned their home on Oahu for at least six years, chances are, you have built up a large amount of home equity.  If you’re retired, you may be considering a reverse mortgage given the equity market’s slide over the last year.  Reverse mortgages allow owners to swap their home equity for cash, while still owning and living in the home. 

Reverse mortgages are available to people at least 62 years of age, who own their home and use it as their primary residence.  The main source of financing is through the Federal Housing Administration (FHA) Home-Equity Conversion Mortgage (HECM) program.  The HECM loan limit is $625,500 (until December 31, 2009) and many factors determine the amount you can borrow such as your age, current interest rates and your home’s value.  Funds obtained from a reverse mortgage are tax-free.

If you qualify, you choose how to receive the money.  You can receive a lump sum up front, opt for a monthly cash payment or choose a combination of the two.  Be advised, reverse mortgages are costly to originate and you also pay an insurance premium.  The insurance guarantees that if the company managing your account (commonly called the loan servicer) goes out of business, the government will step in and make sure you have continued access to your loan funds.  The insurance also guarantees that your total debt will not exceed your home’s value when the mortgage must be repaid.

For more information and a list of brokers, please visit reversemortgage.org.

Here are tentative key points of President Obama’s foreclosure-prevention plan:

• Loan terms may be modified by reducing payments for distressed borrowers
• Refinancing is intended to help owners who are current on payments, but have little or no equity in their home
• Loans can be modified only one time
• To be eligible, your loan must be owned or guaranteed by a government-backed mortgage company such as Fannie Mae or Freddie Mac
• Plan starts immediately and is strictly for primary residences that are not vacant or condemned
• There are no fees for this type of loan modification
• Modification plan ends on December 31, 2012
• Contact your loan servicer for help to see if you qualify

Please consult your Honolulu mortgage professional if you have questions.  Contact Michael Zimmerman if you need a referral to a great mortgage advisor.

Thankfully, Hawaii didn’t have as many 2008 home foreclosures as did California, Arizona and Florida.  Life can be very stressful if you face home foreclosure.  In this time of great uncertainty, there are so many issues to deal with.  It’s sad to think that there are unscrupulous people preying on people in this situation.  These scam artists appear, offering owners a “deal” to renegotiate the terms of their loan for a fee.

If you find yourself in this position, a little skepticism is a good thing.  It’s prudent to verify that the person offering help is licensed to perform that type of work.  You can check to be sure licensees are legitimate at the State of Hawaii Professional and Vocational Licensing Search web page.  Finally, it’s best not to pay for mortgage rescue services in advance.

Since home prices have continued to fall, especially in selected Mainland markets, Freddie Mac is concerned that many more homeowners will default on their mortgage.  They also expect housing prices to decline further in 2009.  In light of this news, Freddie Mac increased several mortgage fees and created a few new ones.

Isn’t it ironic that the very people who will ultimately pay to bailout Freddie Mac (American taxpayers) are now the victims of the company’s new pricing scheme.

One of Freddie’s new fees is a three-quarters of one percent fee of the loan amount on certain condominium mortgages when the loan equals more than 75% of the estimated condominium value.  Simply put, if you can’t put down 25% of your condo’s purchase price, you’re subject to this new fee.  In Hawaii, that can cost several thousand dollars.  Freddie Mac also increased fees on the following mortgage types:

• Loans that let borrowers pay interest in the initial years and defer principal payments
• Refinance loans that allow the borrower to cash out some of their home equity
• Loans with certain combinations of low credit scores and low down payments
• Condominium mortgages

The National Association of Realtors and the National Association of Home Builders have complained that these fee increases discourage home buying and mortgage refinancing when the housing market needs a boost.

Mortgage guidelines are constantly changing, so please consult with your lender well before you decide to purchase a home or refinace.  Contact Michael Zimmerman if you need a referral to a competent mortgage lender.

Honolulu mortgage rates for owner occupants have been near 4.5% for over a month. Perhaps you were thinking of refinancing.  Perhaps not.  I’ve spoken with several friends and clients and many were not aware that rates were this low.  I blame the hyper-negative media for masking this once in a lifetime opportunity.

Before you get too excited, look at the big picture to see if refinancing really makes financial sense.  Below are some ways to help you decide if it will benefit you or not.**

Do you plan to pay off your mortgage in the next few years?  If so, it makes no sense to refinance, as you will not be able to recover the closing costs.  This also applies if you are planning to sell your home in the next few years.

If you currently have an Adjustable Rate Mortgage, moving to a 30-year fixed rate mortgage is a viable option.  Refinancing may not lower your monthly payments that much, but you’ll probably sleep better knowing your payments won’t go up over the life of the loan.

If your current mortgage rate is very high and you qualify for a loan under today’s stricter guidelines, it makes sense to refinance.  A good rule of thumb: within two to three years, you should save an amount equal to the new loan closing costs.

Finally, don’t forget that as you pay less interest over time, you will probably pay more taxes.

**Refinancing isn’t all that complicated.  Nevertheless, please consult your mortgage professional to be sure you’re on the right track.  Contact Michael Zimmerman if you need a referral to a great mortgage lender.

I called a client two weeks ago to suggest she consider refinancing her mortgage.  Rates are 1.5% lower than when she bought her single family home a few years ago.

At first, she was ecstatic and thanked me for the information.  She called last week and said she thought she should wait to refinance.  I asked why.  She said her brother told her rates would be much lower in January.

I told her that her brother might be right.  I don’t have a crystal ball and no one knows for sure.  However, consider this.  The mortgage loan professionals I work with every day have never, NEVER seen rates this low in their fifteen years experience.

The only way to know when rates (or housing prices for that matter) have hit bottom, is well after they’ve hit bottom and are rising.  Interest rates in Honolulu were below 4.5% least week.  This is a huge opportunity for current homeowners and home buyers smart enough to take advantage of it.  This is a gift; take it!