Tips That Could Make or Break Buying or Selling A Condo

There is more to successfully selling a condo than updates, perfect pricing & taking good pictures.
In fact, it starts long before you put it on the market.  If you didn't research your condominiums home owner association before you purchased, and/or weren't actively involved during your ownership, you could have a very difficult time selling.  I have seen it happen too many times; a seller has a willing & qualified buyer, they have agreed to a price, and are ready to move forward with the sale.  Then, to the dismay of both parties, they find out that the home owners' association doesn't "qualify" for the loan.  So what does that mean?  Most loan programs have strict standards to meet when it comes to the purchase of a condominium.  (Especially the popular loan programs through Fannie Mae, Freddie Mac & FHA loans).

Potential reasons why a loan might be denied due to the HOA:

• The home owners' association doesn't have enough reserves (money set aside from HOA dues to cover maintenance or repair costs) 
• Too many investors in the complex.  The lender must consider the fact that renters may not take care of the property properly because they have no ownership interest.  Also, there is the potential for low reserve funds.  While homeowners don't necessarily want to see HOA fees go up, investors especially don't.  To an investor, $50/month on 10 properties = an extra $500/month.  The problem?  If there are not enough fees collected, the reserves could be depleted pretty quickly.

To avoid potential problems when selling, there are 2 major things to consider:

1. Use a realtor to help you research the HOA before you buy.  Your real estate agent can get information from the condo association.  Red flags: 
• If fees are low or aren't going up with inflation.  This could mean there may not be enough in reserves.  (Even if you never intend to sell, if a maintenance project comes up that the reserves can't cover, you may be expected to pay a special assessment.  This could be thousands of dollars). 
• Too much debt, and a lot of delinquent home owners 
• Inadequate insurance
• Pending lawsuits
• Special assessments
2.  Become active in your association from day 1
• Become either a board member or an active member who attends meetings, and/or volunteer for a committee
• The HOA can set limits on those who invest, conduct reserve studies, decide on HOA fees, etc
• Be informed of upcoming projects and/or make suggestions
• Get to know your board members and other owners

Cornerstone Mortgage does offer loans for warrantable (eligible for Fannie Mae, Freddie Mac or FHA) & non-warrantable condos.  But remember, if you purchase a non-warrantable condo, it may be difficult to sell in the long run.

Your realtor and lender are valuable resources, so use us!  Feel free to contact me at any time with questions.

Sincerely,

Chris Scheer

Your Residential Lending Team

"Know Before You Owe" Rule Has Been Delayed

Big changes were expected in the mortgage industry beginning August 1, 2015, as the Consumer Financial Protection Bureau (CFPB) planned to enforce the "Know Before You Owe" rule (aka TRID or TILA-RESPA Integrated Disclosure rule).  But as of yesterday, they have decided to delay the effective date until Oct. 1st. 

The director of the CFPB issued the following statement:

“We made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks,” said Richard Cordray, CFPB director. “We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.”

This decision is interesting as it comes on the heals of a letter from Congress several weeks ago, asking the CFPB for a grace period (which was granted).  The grace period benefits all parties involved, including the consumer.  David Stevens, chairman and CEO of the Mortgage Bankers Association, stated: “This is a vast system of integrated service providers that spreads far beyond just lenders – there are servicing companies, real estate companies and third-party vendors who all have to make sure their systems are compliant and coordinated with each other.”  Further more, Chris Polychron, National Association of Realtors President, stated this will: "ensure the rule works effectively for consumers, who shouldn’t have to bear the burdens of the industry conforming to the new regulatory requirements.”

While Cornerstone Mortgage has worked diligently on preparing for all of the changes happening in the mortgage industry, the end goal is for a smooth transition for ALL PARTIES involved in the process. The hope is that this delay will benefit all involved, most importantly, the consumer.

Please don't hesitate to contact me with any questions.

Have a great weekend,
Chris

Appraisals: Five Common Questions Answered

WHAT IS AN APPRAISAL?

A real estate appraisal is required on a property whenever it’s financed, whether you are buying or refinancing a home. (With a few exceptions, contact me for more information). It is done after an offer is made on a home, or during a refinance.  An appraisal costs several hundred dollars, and generally the borrower pays this fee.

Mortgage Confusion, Bridging the Gap

According to the J.D. Power 2014 U.S. Primary Mortgage Origination Satisfaction Study more than half of first-time homebuyers (54 percent) indicated they did not fully understand the different loan options that were available to them. Only 41 percent of first-time homebuyers stated their mortgage representative completely explained the types of loans, terms, special programs, fees and options to reduce their down payment, compared to 56 percent of experienced mortgage customers.*  

Keeping this in mind, it is always our goal to communicate all aspects of the mortgage process to our clients, especially first-time buyers.  In fact, I have a simple graphic of First-Time Home Buyer Loan Guide that I can provide to my clients & a Home Purchasing Timeline (see below).  Our goal is to communicate from the beginning & be readily available to our clients as questions arise.  

 (*See Full Article)

Please feel free to contact me anytime!

Cheers,

Chris 

Rental Income Is NOT A Passive Investment

As the economy continues to recover and people are thinking of ways to build their net worth, owning rental real estate always comes up in the discussion.  Having participated in this investment type there are a few thoughts I would like to share.

Don't do this thinking this is a passive investment! Rental Income is EARNED!  You earn it in a variety of ways:

1. Finding the right house.  Looking at houses takes TIME.  Robert Kiyosaki mentions the numbers of houses he would look at to be able to purchase an investment property in his book "Rich Dad, Poor Dad".  Working with a realtor is very important as they can give you insight into property values, and assist you in finding the right house, at the right price, in the right neighborhood.
2. Preparing the house to rent.  Even if you hire contractors to do all the work, you still have to determine what is needed, set a budget and then manage the work.  
3. Finding tenants.  This can be time consuming and frustrating as you ultimately do not know who to trust.  A good source for learning how to do this is Gary Keller's book  "The Millionare Real Estate Investor."
4. Continued management.  Lastly, you have to make sure you collect the rent from the tenants, pay to keep the property up and continue the cycle of finding new tenants when your current tenants move out.  

All of this is WORK at some level, but when done correctly you can build a steady stream of income that can become your nest egg for retirement.

Happy Investing,
Chris

Can Medical Bills Cripple Your Chances for a Mortgage?

Almost 1 in 6 credit reports contain a medical debt collection, according to the Federal Reserve. 

Collections are considered a derogatory item and will hold the most weight when it comes to affecting a credit score (30%).  So if you have a medical collection, it will negatively affect your score and could change whether you qualify for a mortgage or not.

John Ulzheimer, president of consumer education at SmartCredit.com says:

"It’s easier to keep something from going to collections. It’s a lot harder to get collections off your credit report."  He is right.  But, if you have a looming amount of medical debt, this may be easier said than done.  

What you should do:

• Have us do a free credit check-up for you, we can tell you if you have any collections
• For large medical bills, agree to a payment plan
• Pay or settle on the smaller bills
• Avoid financial traps - Never use a home equity loan to pay expensive medical bills. This type of loan can put your home at risk if you are unable to pay.  Also, do not forgo paying your mortgage to pay a medical bill.  Instead, call the hospital or collection company and set up payment arrangements.

Can Congress help?

Congress is considering the Medical Debt Responsibility Act, proposed legislation that would require medical bills to be removed from credit reports 45 days after they are paid, provided the original amount is $2,500 or less. It has bipartisan support, but has been slow to make its way through the legislative process. The Consumer Financial Protection Bureau is also examining the issue.

Until then, if we can can answer any questions, please let me know!

Have a great weekend, 

Chris

Check out our team's informative mortgage videos at: www.youtube.com/cscheer1961

Read more at: http://www.bankrate.com/finance/credit/will-unpaid-medical-bills-hurt-credit.aspx#ixzz2hzs7WZnb or http://money.msn.com/credit-rating/when-medical-bills-hurt-your-credit

Qualified Mortgages: What It Means for Our Clients

For more than a year, Cornerstone Mortgage has been gearing up for the changes in the mortgage industry.  We have had fair warning about the new rules and were fully prepared for January 10th, 2014, the day the regulations drawn up by the  (CFPB) Consumer Financial Protection Bureau went into effect. 

Many cringe at the thought of more regulation, compliance & the possibility of not being able to obtain a home loan.  These are very real concerns.  To be frank, there is not enough room on this blog for all the changes, as the Act is thousands of pages long but here are a few of the basics.

A large portion of the rule are Qualified Mortgages.   QM sets a minimum standard for all lenders to ensure they only make  loans to borrowers who have the ability to repay the loan.

Qualified Mortgages are based on some common-sense ideas:

• The borrower should be able to repay the loan.
• The terms of the loan should be safer for borrowers.
• The loan should also be easier to understand. That means you won’t see QMs with complicated and risky features such as negative amortization or interest-only periods. (For more on the CFBP's definition: Qualified Mortgage)

In addition, the new regulations provide that there will be:

• no balloon payments
• no terms over 30 years
• points & fees cannot exceed 3% 

For most borrowers, the change will have little or no impact on whether they can actually get a mortgage, but there may be more loopholes to prove that they can afford one. We are here to help!  

All of these regulations are things that could put smaller lenders out of business, but are the reasons Cornerstone Mortgage is here to stay.

Please contact us for more information on how these changes impact you.

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