Tacoma Down Payment Assstance

City of Tacoma has a down payment assistance program for 1st time buyers using FHA loan. Here is the link: http://www.cityoftacoma.org/page.aspx?nid=454

How to buy a cheap house on low income

So you go to the bank and say you make $1500 a month. Bank will allow your monthly payment to be 41% of your income: $615 total, including taxes, insurance and home owners dues if applicable. This payment allows you to buy an $80,000 house at best, if taxes aren't too high. Suppose you can't find anything nice in that price range. What do you do then? You look at houses requiring a rehab loan, it will say so in the listing. You find a fixer priced $40,000 to $60,000, and you make an offer specifying financing: FHA 203K Then in the 10 day inspection period you call a contractor and ask him to come out with you and bid on the repairs. The contractor will give you a rough estimate of how much the repairs would cost. You need a minimum of $5000 of repairs, and the maximum allowed is $35,000. Be careful not to exceed the maximum loan amount you are approved for when you add the purchase price and the cost of repairs. The bank will finance the total package, you'll pay the same low 3.5% down of the total amount. As you can see, it is quite easy and affordable.

Fannie Mae financing, is it a good deal like it says in some listings?

Sometimes you see a listing that says, Fannie Mae property, only 3% down. Is that really true? Well, I called a whole bunch of banks, wanting that deal, and found out a few things:
1) Most banks don't do Fannie May
2) A lot of the ones that do want 20% down, they say it's not worth their time
3) A lot of banks that do Fannie May will have a minimum loan amount, such as $50,000 or $75,000, so if you're looking at a cheap Fannie Mae condo listed at $40,000 no one would bother lending on it
4) I was recently referred to a Fannie Mae lender, and the banker I talked to was such a stickler for rules and so dense, she disqualified me for a $55,000 townhouse, where as I am pre-qualified by a few banks to buy something up to $80,000 FHA. She thought a payment of $550 a month was too high for my income, where as Bank of America or Banner bank, for example, would easily let me go up to a $650/mo payment.
So, to summarize in plain English: Fannie Mae 3% down is a mystical pot at the end of the rainbow that you can chase forever and never get.

Buying a HUD home demistified

To buy a HUD home you need to get an agent who is approved to do HUD. The agent submits your bid on the computer. HUD has been greedy and hasn't taken full price offers right away, but waited to see if they'd get a more than full price offer. So you might submit a bid and not hear from HUD if you win the bid until the end of the bidding period. To see how long that would be you can go on the HUD site (click this link): hudhomestore.com and look up the property you are interested in bidding on. You must know, however, that if you bid a higher amount than the listing price, you'd be expected to pay that difference in cash.
A lot of HUD homes need repairs. It tells you right there in the listing on HUD site what the Repair Escrow is. What it means to you in plain English is that a HUD inspector determined that as the amount required to fix the house to the minimum standards to allow one to live in it. You don't need to have that cash up front. It will be added to your FHA 203b loan, which is like a regular FHA loan, actually easier, since there is appraisal required - HUD's report of what needs to be fixed is enough. There may be more things you'd like to improve upon, in which case you'd need to get an FHA 203k loan. If you do that, an additional new appraisal will be required. In either case, your total loan amount is the purchase price plus the repair escrow plus whatever repairs you want to finance less your down payment. You have 48 hrs from the moment you win the bid to agree and to turn in your paperwork and lender approval to HUD. So you should definitely get pre-qualified before you win the bid. Use a HUD approved lender easy to work with. I am currently using Bank of America, for instance.

An awesome $500 down conventional loan program

It's a 100% conventional loan. Unbelievable! The interest rate is only a little higher, like 1% only. But there is no mortgage insurance! So the monthly payment is the same as for an FHA loan. A poor person's dream come true!
Contact Tracy at tracy_m_sommerdorf@keybank.com  to get started. (Make sure to tell her Rita Andreeva referred you.) Oh, and if you open an account at Key Bank they'll deduct $150 off your closing costs.

Get government to help with down payment

There are a number of down payment assistance programs.
Here are links to such programs and contact information:
http://www.wshfc.org/buyers/homechoice.htm#hclender
http://www.homeownership-wa.org/search_resources/region1_2.htm

Should you buy a condo or a house?

In the market with low interest rates as it is right now, a condo fee is often as large or larger than the mortgage payment itself. You have to remember that a condo fee is used together with your mortgage payment, taxes and insurance to calculate your debt-to-income ratio. Make sure to read about those ratios in my previous post on financing.

A comparison example:
A 2-bd condo is listed for $40,000, tax $1400, homeowners' association fee $300.
Your loan amount would be: 40,000 less 3.5% ($1400) downpayment - $38,600. At the going rate of 4%, using the calculator in the right sidebar, your monthly mortgage payment comes to $184.
You add your monthly tax, condo fee, and insurance to that, and your total monthly payment is:
117 + 300 + 50 + 184 =  $651.
You can pay a bit more for a house, because you won't have a condo fee. Your taxes and insurance will be a bit higher, as well. A monthly payment on a 2-bd house listed for $70,000, tax $1700 with $2450 (3.5%) comes to: 322 + 142 + 60 = $524.

At first glance it looks like a better deal, but now add the water, sewer, gas and the garbage to that payment, which all come to about $200/mo, and now your actual money-out-of-pocket monthly payment is $724 per month! Then add the health club fee, since you can't go to a free pool and a free exercise room, add the fee for mowing the grass, and the security monitoring fee - now you are looking at $800 a month. Sure, you can save on the landscaping by doing it yourself and count that effort as equal to going to a health club. Oh, almost forgot - the condo fees often include things like cable or/and wireless internet, too. So add another $50 to your house payment. Honestly, the upkeep of a house is much higher than that of a condo, and you have more headaches and responsibilities.

FHA vs Conventional loans - a comparison

1. Downpayment

Conventional loan: 5% to 20% down, depending on your credit score and how much your bank likes you. I am actually aware of a conventional loan with only $500 down, it is a 100% loan!

FHA loan: 3.5% down

2. Debt to income ratios

Conventional: 28/36
FHA: 29/41

The first number (28 or the 29) is the supposedly maximum ratio in % (percents) of the house payment (including mortgage payment, tax, insurance, and Homeowner's Assoc. Fee if applicable) to your gross monthly income. The second number (35 or 41), is the max ratio in % of the house payment plus all your recurring monthly debt to your monthly income. If you have no debt, you can just use the second number. For example, if your monthly income is $1200 you can get a mortgage with a
1200 x 36% = $432 monthly payment under conventional,
and 1200 x 41% = $492 monthly payment under FHA guidelines.
Those ratios are by no means written in stone. If you have decent credit, a bank will go over those ratios, raising the second number up to 43 - 45%. And with an excellent credit the bank may even go over 50%.

Example 1:
A huge condo is listed for $40,000, tax $1700, HOA fees $320
Your loan amount would be: 40,000 - downpayment
Your monthly income is $1300 a month
When you add the HOA fee and the taxes you come up with 462/month
Your debt to income ratio (provided you have no credit card bills or car payments) allows you a $468/month with a conventional loan and a $533/month payment with an FHA loan. Since your homeowners fees and taxes are already up to the allowable ratio, that eliminates the conventional loan for you. (At least the conforming kind with a decent interest rate. There are lenders that do non-conforming loans.)

Supposing you go FHA and put 5% down ($2000), you mortgage payment would be $ 181. (figured at current March 2012 interest rate of 4%)
Your total monthly payment would be: 462 + 181 = $ 643. which is a 49% debt to income ratio. Some banks will allow that, depending on your credit. But you must remember that to qualify for an FHA loan you'd have to add an insurance payment, since FHA requires for you to carry insurance, which is, say, $500/year, 500/12=42/month. The insurance payment will bring up your total monthly payment to $685, which would most definitely not be okay with a lender.

You can afford a much more expensive house than a condo. A condo may only be listed for $40,000, but the condo fee of $300 can easily tip the ratio over the top, making the purchase impossible.
Example 2:
A house listed for $70,000, tax $1700
Say you go FHA and put $2450 (3.5%) down
Mortgage payment: $ 322.
Tax:                         $ 142.
Insurance:                $   50.
                                  ------
                               $   514. /mo
The debt to income ratio in this case is only 39%, which is under the 41% and you are perfectly fine.

3. FHA and conventional Appraisals

Banks require appraisals for both types of loans, but the FHA appraisal is much more strict, and often downright ridiculous. The rules say that the house must be livable, but what FHA deems livable, can be just about anything, such as scuff marks on the door, a spot of peeling paint, even a rickety shed in the back yard that no one plans to live in! Once the FHA appraiser has his say, the bank can not lend the money on the property until every little thing specified in the appraisal report is fixed. A seller is asked to fix those problems. Asked does not mean he will do it. He may not want to, the sale will fall through, and you lose the $500-$600 you paid for the appraisal. You are not getting it back, so always be ready for that curve ball. Hiring an inspector to check out the property before the appraiser goes out would cost you about $300, which you'll never get back either, and, normally, an average inspector will not be able to come up with all the things the appraiser will dig up - often an inspector wold dismiss those items as unimportant. And they do seem totally unimportant, considering the FHA basic requirement is for a property to be livable. Now, how does a scuff mark on the door make it unlivable, I'd like to know! It often seems like an FHA appraiser enjoys "playing god" and putting as many spokes in your wheel as possible. I have experienced this first hand!

An appraisal for a conventional loan is more realistic and, basically, just considers the value of the property and the values of the surrounding similar homes. A conventional appraisal is also cheaper ($350).

If you so much as suspect that the house you are purchasing is in need of some repairs, however slight, you might want to start out from the very beginning as an FHA 203K - an FHA rehab loan. A 203K loan will allow you to finance whatever ridiculous repairs an appraiser will dream up of into the amount of the loan. But look at the properties a bit cheaper, and do your best to estimate the cost of repairs, so you can allow for the increase of the monthly payment and still stay within the debt to income guidelines!