Changes to NC Real Estate Contract – Raleigh NC

May 10, 2011

The new 2011 NC real estate contract requires a completely different approachto the home buying process.  The new contract, currently referred to as the “Offer to Purchase and Contract” presents quite a few major changes; let’s explore what they are and what impact the changes will have on your next home purchase or sale.

The Due Diligence Period:This may be the largest change in North Carolina’s real estate contract.  The due diligence period is a mutually agreed upon time period where the buyer must fully review and investigate the property and decide whether or not to proceed with the purchase.  The length of time allowed and the fee for the period are negotiable and set after both the buyer and seller agree upon the parameters.  After a consensus is reached, the buyer has basically purchased this period of time to contemplate the purchase and investigate the property.  They have the option to terminate the contract for any or no reason at all, completely at their discretion, before the time period has expired.

Due Diligence Fee: The fee is negotiated and agreed upon by both buyer and seller and provides the buyer the right to conduct the due diligence.  The length of time is directly related to the fee amount in that a longer period would result in a higher fee.  Much like the earnest money, the fee becomes the property of the seller and at closing, will be applied as a credit toward the buyer’s costs. Do note, this fee doesn’t replace the earnest money deposit but is a separate item.

Due Diligence Process: There isn’t a set of defined items in the due diligence period but the buyer must complete any of the following items that they feel are important when considering the purchase of the home:

  • have all inspections performed on property
  • have property appraised
  • have a proper survey performed
  • review all relevant property documents
  • secure final approval for any financing
  • investigate insurance availability and affordability
  • investigate zoning, schools, proposed roads, etc
  • investigate potential flood hazards and and flood insurance requirements
  • any other investigation the buyer wishes to perform
The days of the buyer and seller debating what is and isn’t a “necessary repair” are over.  Now, the buyer is free to request that the seller perform any improvements or repairs regardless of whether the item is listed on the previously used “necessary repair list.”  Conversely, the seller is free to refuse these repairs or improvements.  The property can be accepted by the buyer in its “as-is” condition, work with the seller to negotiate a written agreement to outline what will be repaired, or simply terminate the contract prior to the end of the due diligence period.

Note: Appraisal or financing contingencies are no longer permitted as these matters must be resolved prior to the expiration of the due diligence period.

Simplified Dates: The new NC real estate contract contains only 3 dates, a reduction from the previous 8: 1) Effective date 2)  Due diligence date 3)  Settlement date.

Seller Breach Provision: In the event that a seller breaches the contract or fails to comply with their obligations to deliver the property at settlement, both the earnest money deposit and the due diligence fee are to be returned to the buyer.  If any costs were incurred by the buyer during the due diligence period, the seller is now obligated to reimburse the buyer for said costs as long as they’re deemed reasonable.

Other changes were made to the contract but the aforementioned alterations are those most worth mentioning.  It can be argued that these changes give both buyers and sellers more protection from the risk associated with today’s real estate transactions.  The changes force both parties to be more prepared and informed for the transaction ahead.

Derek Shankweiler

Riano Mortgage Team

@ DNJ Mortgage

Raleigh NC 27607

919-459-6533


changes to FHA mortgages – raleigh nc

April 13, 2011

 

Wow the graphic is a bit rough – i was never good at perspectives – sheesh.

Anywho – as FHA continues to try and strengthen their reportedly super low capital reserves and reduce their overall risk in their portfolio holdings, more changes to the program are about to be put into place. IE Monday April 18th.

So what changes?  Let’s dig in shall we.

FHA requires a mortgage insurance premium to be financed into your loan amount and they require a monthly mortgage insurance premium as part of your payment.  The financed portion, which is currently 1% of the loan amount, will not change.  Woopie!?!  The monthly MIP will change though.

Just in case you don’t get the whole upfront MIP – here’s how it breaks down.  You pony up a 3.5% down payment, FHA requires 1% to be financed, you walk away with 2.5% equity.

Now the monthly premium is based on the loan amount.  For the purpose of creating a basic example, let’s just assume we’re purchasing a home and we want to put the minimum 3.5% down.  Currently the MIP is .9% per year *(ie- .9% x loan amount divided by 12months).  After the 18th of April, the % will go up to 1.15%.  Doesnt sound like a big jump but check it out:

FHA is basically upping their revenue by about 22% through this increase in MIP.  So plenty of people agree with the changes, some people are annoyed that this is the third change to the premiums in the last 12 months, and yet others see the shift as something different – possibility.

Currently you can still purchase homes for a minimum amount down AND get private mortgage insurance elsewhere.

I actually just put together a proposal for one of our clients which compared the $ required for a conventional 5% down purchase vs. a 3.5% down FHA purchase for a 281k home.  Check-out how they compare – pretty tough choice to make.  Private insurance companies will surely be lowering their rates as more people will be considering larger down payments.

This assumes $2200 yearly taxes and $522 in homeowner’s insurance.  Also, the last option is known as a PMI Buy-out – where we buy our way out of having to pay mortgage insurance every month.  The one time premium can be paid by you or via a credit applied by your loan officer.  In each of these examples I’m raising the rate just enough to cover all the costs, and in the last example, raising it enough to pay a 6k mortgage insurance premium.

Granted if you really can’t afford to take that much of your savings out for the purchase, the FHA definitely provides a lower down payment option.  But If you look at the over-all picture, you’ve got some good options to measure up FHA to.

To see if what you’re qualified for or to have a professional help you compare and contrast options, give us a call.

Riano Mortgage Team
DNJ Mortgage
1350 Sunday Drive
Raleigh NC 27607

919.459.6565

 


top 5 mortgage refinance misconceptions – dnj mortgage raleigh nc

October 2, 2009

confused2Today we’re going to review 5 of the most common excuses I hear from folks with high rates who are refusing to refinance. Why would I post a seemingly salesy blog like this?  Really it’s out of frustration.  I had a conversation this AM with my uncle and mortgage rates came up – apparently his 30yr fixed has a 7.75% rate  – which he is completely fine with.  During our conversation he provided me all sorts of facts on why it wouldn’t be wise for him to refinance; unfortunately for him, none of his facts were true.  After clearing up all his misconceived notions, I returned to the office and sent him an email with a cost analysis in it – I think now he’s completely changed his tune. I thought to myself  – “I should blog this…” – so I am.  – I know that this is not the easiest topic to wrap your head around, but it’s absolutely necessary to understand the basics so you’re not letting misinformation stop you from making smart financial decisions.

1.  The process takes too much time and is too much of a hassle.
I’m going to break this down into what, in my opinion, a realistic estimate of your time commitment should be.  The upfront document gathering should take 60min (more info in this post).  I would consider myself a semi-organized person, I don’t overdo it, but I would have no problem furnishing the requested items in a very short period, as most people could and do every day.  After you email or mail those items in, you’ll receive a loan application and disclosure package in the mail; signing and returning this package should take no longer than 30min.  After that – the only other time you’ll need to invest into the transaction is at the closing which can take anywhere from 30 to 45 min.  So, on the high side, we’re right at 2.25hrs of time you’re going to need to set aside for the process.  The other time killer to consider is your shopping technique.  The average person will contact 3-4 institutions (a bank, local credit union, and a broker or two) and then make their decision from the quotes provided.  The rates they receive will be pretty similar as will the cost of the transaction.  On the other end of the spectrum, you have the folks who miss out on the low rates because they spend 3-4 weeks comparing dozens of quotes from untold amounts of lenders.  The moral of the story, this can be as fast and easy as you make it – it should realistically consume no more than 5 hrs of your time even though it will take us 30 days to close your loan.

2.  It’s going to hurt my credit if I’m denied.
I’m faced with this comment/question quite a bit throughout the course of the month, the answer is no.  Although you’re supposed to keep your shopping period to 14days or less for multiple lender inquiries not to affect your score, just the act being denied does not affect your score.

3.  I’ll wait until rates are a bit lower.
Check out this graph that follows the 30yr fixed rate average over the last 5 years.  We’re at the orange marker, early January after the market crumbled is in pink.  How will the next few months or years look? We’re not sure but it does appear we’re on our way out of the trough we’re currently in.  30yrfixedpastfiveyears

4.  I don’t want to start my term all over again.
Your term, whether it’s a 30, 15, or 10, is really the maximum amount of time you have to pay back your balance.  With conforming loans, you don’t get penalized if you pay off your loan faster, and you’re really just being given more time to pay off the loan when you refinance for the same term loan.  The easiest way to explain this is to use a sample situation.  Let’s say Bob got a $200k loan at 6.75% when he bought his home 10 years ago.  He’s been paying his regular mortgage payments the entire time and he’s recently heard that rates are quite a bit lower so he’d like to refinance.  Bob’s current balance is right at $167k.  Assuming he’s just going to pay for the refinance out of pocket, his new loan will be for $167k at 5% for 30 years.  He still owes the exact same amount, is paying about $2900 less interest every year, but is under no obligation to keep the loan for the entire 30 years.  There are no pre-payment penalties for conforming loans. I noted in my previous post about paying extra each month – If Bob decides to keep paying his old payment, ie reinvesting his savings, he’ll pay off his loan in 17 years.

5.  It’s not worth it for me to refinance.
This really depends on how long you’re looking to stay in your home.  Moving in 4-5 years, most likely not – staying for awhile – take a closer look because you could be missing out.  Day after day I prove with hard numbers why and how refinancing into a lower rate or a different product can save people money.  The best example I have of this is when I showed my dentist how much he could save.  Mr. P knew that he wasn’t going anywhere in his home, had already remodeled his kitchen and basement, and was quite sure that he wasn’t going to be modifying his mortgage for the rest of his term – but still asked every now and again how rates were.  When they reached 4.75%, I emailed him the following cost/savings analysis.

55to475 By dropping him down .75%, he’s saving $1890 a year, and his savings start catching up to him 25 1/2 months after he shells out that $4k for the closing costs.  That small drop in rate saves him almost $82k worth of interest over the life of the loan.  Think it’s not worth it?  Why not let us prepare a cost/savings analysis before you decide.

DNJ Mortgage
1350 Sunday Dr
Raleigh NC 27604
919-459-6533


paying extra saves in the long run – dnj mortgage

September 22, 2009

Today we’ll look at the strategy behind adding a little extra to your mortgage payment each month.  This process basically does two things; it saves you money by knocking your principal down quicker which effectively reduces the amount of interest you have to pay and it reduces your loan’s payoff period.  I think that a good first step in this discussion would be to understand how exactly your monthly mortgage payments are broken down.  To do this, we’ll use an amortization schedule.  This table is simply a loan repayment schedule of sorts; it breaks down each payment so you can see how much of the payment is going toward the principal and how much is interest.  You can also see the effects of extra payments and rate changes on the overall amount of interest you’ll pay over the life of the loan.

For our example, we’re going to use a 30yr fixed rate mortgage at 5.5% and a loan amount of $200k  – you’ll see these figures in the top row highlighted in yellow.  To the right, in the same row, you’ll see the monthly payment for this mortgage in BLUE, this is your minimum required payment. Beside that, in GREEN, is the total amount of money that comes out of your pocket to pay off that $200k mortgage (principal plus total interest paid) over the 30 year period.  And lastly, in ORANGE, you’ll see the total amount of interest you’ll pay over the course of the loan.  If you’re turned around on how exactly interest and payments are calculated, you can visit our mortgage calculators page to get yourself oriented.

If you look at the second line, in PURPLE, you’ll see how the first payment is broken down.  Of the $1135.58 – $218.91 (19%) goes toward your principal, and the rest ($916.67) covers the interest.  Now take a look at the loan balance in line one – that $218.91 barely made a scratch in the principal.    Next, let’s move down to the fourth mortgage payment on line two (4).  The required payment is the same but the principal and interest portions have shifted slightly.  As the months go by, you’ll see that more of your monthly payment is going toward the principal as the overall loan balance decreases.  So that’s the basics of an amortization schedule.  If you want me to email you a blank excel spreadsheet that you can fool around with on your own, just email me.

amort_table-1

Now let’s look at how making extra payments will affect these numbers.  Let’s just say, that after running over your monthly budget, things are looking good and you have $200 extra that you’d like to put toward your mortgage every month.  So you make the commitment and start adding that 200 onto your payment.  If you stick with it until the end, below is what your updated amortization table will look like.  Check out the principal column – you’re nearly doubling the contribution with that extra $200 during the months shown.  The percentage of your payment going to the principal goes from 19% to 37%.  MOST importantly, compare the total payments (green) and the total interest paid (orange) – by making these extra payments – you’re skipping out on $97,826 worth of interest – not bad at all.

amort_table-2
Lastly, let’s look at the affect of these payments on the payoff period.  Typically the 30 yr fixed rate loan would take 360 payments to pay off – 12 per year for 30 years.  But, because we’ve made our extra payments, we’ve almost cut the loan term in half – from 30 years to 17 years and two months.

amort_table-3 The long and short of it is this: we’ve put quite a bit of money toward the mortgage than we had to, but we saved a ton and shortened the term of the loan.  I really suggest this strategy to those who plan on staying in their home for quite a while and who really want to get this monthly payment off their books.  It’s definitely not for everyone and there are some other (better) ways your money could be working for you, but regardless, lots of folks want to pursue this avenue and I thought I’d give a clear explanation of how what affects it has on your loan.

 

Questions? Comments? – just shoot me an email at derek@dnjmortgage.com

For More Information Call:
DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607
919.459.6560


what affects my available interest rate?

September 1, 2009

interest rate diceOften when I provide clients with rate quotes for refinances, they are astonished that my rates are completely different from what they see on the internet (lendingtree for example).  So I just want to take a few minutes/words to explain all the elements that affect the rate that you’re eligible for.  The one thing I want to clear up before I begin is that I work for a broker and my particular company has access to 20+ wholesale lenders (large moneylines).  Each lender has their own rules and guidelines and will require different scores, ratios, etc for different tiers of borrowers.  If you’re refinancing through a bank, it’s their money and they measure risk and determine loan variables differently.  So, with that said, let’s go through the pricing adjustors  for a regular 30yr fixed conventional loan (we’ll do an FHA/USDA some other day).  Lets start out with a 5% rate and adjust as we go for a $200k loan on a home valued at $300k.

1. Loan Amount – The bad news, the size of the loan you have or that you’re looking to get, will affect your rate.  The good news, you really only get hit for loans under $90k.  “Good you say?” Well yeah, even some of the lower priced townhomes in the greater Raleigh area are right at $99k.  A lender may have a negative pricing adjustment of .25 or .5 for loans less than $90k, but since our example for a $200k loan, we’re out of harm’s way – our rate is still at 5%. If we were under $90k, we’d be at 5.5% now.

2. FICO & LTV – Next, a duo of price adjustors working together to hedge risk for the lender.  Lenders adjust on a sliding scale, more adjustments for higher LTV and lower FICO, and vice-versa.  The LTV is simply your loan to value or your loan/value – which in our case is 200/300 or 66.7%.  Nowadays, any score under 720 gets a pricing hit – which stinks I know but banks are stricter these days.   LTV hits vary between lenders but you can expect to take a pricing adjustment if you’re at or over 69%.  Let’s say we only have a 700 FICO and with our LTV at 66.7%.  Considering the two previous statements, we’d most likely be looking at a .5% hit – moving our rate up to 5.5%.

3. Property Type – There are pricing adjustments for different property types, mainly condos and 2+ unit buildings.  These hits range from .5% to a whole 1%.  Since we’re refinancing a single family home, there wont likely be an adjustor (they’re the most common dwellings) so we’re still at 5.5%.104861

4. Cash-Out – Looking to take out a few thousand in cash at closing?  This will definitely affect your rate.  The cash-out pricing adjustments are also based on the LTV and FICO scores.  If you’re over 60% LTV with anything less than a 700 FICO, you can expect a .5 or greater hit for taking cash out.  In our example, we’re not looking to take any cash out and thus our rate remains the same.

5. Second Mortgages – If you’ve got a second mortgage that you want to leave be either because of the rate or just as a preference, there will be an adjustment on pricing (usually .25-.75%).  This is super dependent on the lender and it’s hard to make any general statements about this adjuster.  If we had a second, we may be looking at a 6% or 6.25% rate.  Banks do this because of 1. risk and 2. they want you to consolidate notes so they can have a bigger chunk of your debt – the more money you owe them, the more interest they earn. (overly simplified reasoning I realize but true nontheless).

These are the basic price adjustors that you’ll most likely run into; there are separate and additional rules for FHA and USDA loans as well as adjustable rate products.  So jeeze you say, that darn FICO score hurt my rate a .5% – I wish there was something I could do to get that 5% rate.  Well there most definitely is – have you ever heard of buying down a rate?  That’s exactly what you can do.  If you’ve got the extra cash and are looking to stay in your home for a long period of time, you can put some extra money into the transaction and your mortgage professional can move you into a lower rate.  I’ll post later on this week about buy-downs (or have I already posted about that?) – but considering a $200k loan at 5.5%- if you buy the rate down .5%, you’ll be saving close to $21k in interest over the life of the loan.  Feel that that’s worth the approx $1k that it would cost? – A lot of people would agree.

All these examples were general estimates that assume many elements of the transaction – like I said at the beginning of the post, every lender and bank have completely different rules and adjusters, all % examples were just basic guestimates to give you a general idea of how your specific rate estimate was calculated.

Want your own rate quote?  Just visit our website – no obligation or cost.  http://www.integritylender.com/raterequest

As with any of my blog posts, if you’ve got questions, I can help. (919)459.6533

DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607
919.459.6560


first time home buyer tax credit raleigh nc

August 25, 2009
The $8,000 Tax Credit Breakdown For First Time Buyers
Available until December 1st 2009 with some speculation, although no rumors have been confirmed, that the credit will be extended through 2010.
The Basics –
This program provides a credit worth 10% of the purchase price with a maximum amount of $8,000.
This credit doesn’t have to be repaid.
Only first time home buyers are eligible for this credit. Technically, by IRS standards, a first time buyer hasn’t owned a primary residence for the last three years.
Any home qualifies, whether you’re building or even considering a houseboat!
Am I Eligible?
1. You must have purchased a home this year or plan on finalizing a purchase on a home before December 1st 2009.
2. Are you a first time home buyer? Technically, you’re not a first time buyer if you owned your primary residence in the last three years. If you file jointly with your spouse, neither of you could have owned a primary residence in the last 3 years. But, if it’s an unmarried or joint purchase, the credit is available for the eligible person. A great example of this would be if a home is being purchased jointly by a parent and their son or daughter. Owning a vacation or rental property wont disqualify an applicant.
What are the income limits?
The single taxpayer income limit is $75,000 and for married taxpayers who file jointly, the limit is $150,000. There are some provisions for people with modified adjusted gross income above these two points. We can provide you an estimate of the amount of tax credit you’re eligible if your income falls outside these ranges.
I swear I heard that this credit had to be paid back!
Nope; that tax credit was put forth by Congress in 2008 and because it had to be paid back was really just an interest free loan. This program provides a true tax credit as long as you keep the house for your primary property for no less than three years (if you dont, you’ll have to repay the credit). This credit isn’t a tax deduction; those are discounts subtracted from your income to calculate a decreased tax amount (not the same deal).
Do I have to wait until I file my taxes to get this tax credit?
No! Talk to your tax professional about amending your last tax return.
Can I get this tax credit with a FHA or USDA loan?
Yes – this credit is available for almost any loan product.
For non-US citizens
As long as you’re a non-resident alien and you’ve owned a principal residence in the last three years, then you should be able to claim the tax credit.Do make sure you meet all IRS requirements set forth in the IRS Publication 519.
Overview of the first-time homebuyer credit on the IRS’s website. http://www.irs.gov/newsroom/article/0,,id=204671,00.html
DNJ Mortgage
1350 Sunday Dr
Raleigh NC 27607
919.459.6560
integritylender.com

The $8,000 Tax Credit Breakdown For First Time Buyers

Available until December 1st 2009 with some speculation, although no rumors have been confirmed, that the credit will be extended through 2010.

-The Basics –

  • This program provides a credit worth 10% of the purchase price with a maximum amount of $8,000.Our property
  • This credit doesn’t have to be repaid.
  • Only first time home buyers are eligible for this credit. Technically, by IRS standards, a first time buyer hasn’t owned a primary residence for the last three years.
  • Any home qualifies, whether you’re building or even considering a houseboat!

Am I Eligible?
1. You must have purchased a home this year or plan on finalizing a purchase on a home before December 1st 2009.
2. Are you a first time home buyer? Technically, you’re not a first time buyer if you owned your primary residence in the last three years. If you file jointly with your spouse, neither of you could have owned a primary residence in the last 3 years. But, if it’s an unmarried or joint purchase, the credit is available for the eligible person. A great example of this would be if a home is being purchased jointly by a parent and their son or daughter. Owning a vacation or rental property won’t disqualify an applicant.

What are the income limits?
The single taxpayer income limit is $75,000 and for married taxpayers who file jointly, the limit is $150,000. There are some provisions for people with modified adjusted gross income above these two points. We can provide you an estimate of the amount of tax credit you’re eligible if your income falls outside these ranges.

I swear I heard that this credit had to be paid back!
Nope; that tax credit was put forth by Congress in 2008 and because it had to be paid back was really just an interest free loan. This program provides a true tax credit as long as you keep the house for your primary property for no less than three years (if you don’t, you’ll have to repay the credit). This credit isn’t a tax deduction; those are discounts subtracted from your income to calculate a decreased tax amount (not the same deal).

Do I have to wait until I file my taxes to get this tax credit?
No! Talk to your tax professional about amending your last tax return.

Can I get this tax credit with a FHA or USDA loan?
Yes – this credit is available for almost any loan product.

For non-US citizens
As long as you’re a non-resident alien and you’ve owned a principal residence in the last three years, then you should be able to claim the tax credit.  Do make sure you meet all IRS requirements set forth in the IRS Publication 519.

Overview of the first-time homebuyer credit on the IRS’s website. http://www.irs.gov/newsroom/article/0,,id=204671,00.html

DNJ Mortgage
1350 Sunday Dr
Raleigh NC 27607
919.459.6560


getting ready for a new home purchase – raleigh nc

August 18, 2009

photo36I just got off the phone with a friend who’s ready to start shopping for a new home and I thought I’d do a brief recap of the recommendations that I provided him. I blogged previously about getting yourself prepared for a refinance, and this post will run along the same lines. Doing your due-diligence goes quite a long way with regards to financial situations like this. When you initially speak to a loan officer, they will “pre-qualify” your situation. What they’re basically doing is considering your stated income and debt levels and possibly doing a credit check to estimate what dollar amount you would be qualified to borrow. It’s a “in theory” type of situation. In theory, if your income and the rest is what you’re saying it is, here’s the $amount you’re qualified t

o borrow. When you’re ready to actually move forward and make an offer on a home, you’ll need to get pre-approved. This is when the loan officer will request items that will verify your financial situation and calculate your exact debt ratios and the result is that you’re basically approved on the broker’s side for the loan (pending underwriting by the lender).

Most people in the home buying process took some time with a professional and have narrowed their purchase range to a certain $ amount and have shopped around a bit. Whether you’re ready to move on a home or not, you’re still going to need to dig some items up, so here’s a quick list.

  1. Most recent paystubs for the past 1 month. (The person processing your loan will need to make sure that your gross income figure is correct so they’ll need a full 30 days of income proof. Most larger companies provide an online system that you can simply export a screen capture or email a pdf of your previous stubs. Brokers do not need the original copies, but if provided, we’ll make copies for your file.
  2. W2’s for the last two years. (People do move jobs quite a bit, and pay rates fluctuate depending on what type of profession you’re in; these w2’s will help us calculate any additional non-salaried pay, bonuses, etc. into your income calculation.)
  3. Signed copies of your tax returns for the last two years (Lenders are getting stricter with their underwriting process. These tax returns aren’t always required but as the industry continues to tighten their restrictions, you may want to dig them up just in case. The tax returns you provide will help to not only verify your income, but your overall expenses and deductions helping the underwriter to gain a more complete picture of your financial profile. Tax returns are absolutely necessary for those who are self employed or independent contractors.
  4. Bank statements for the last 60 days. (This helps to verify your cash flow and your assets on hand. These are only useful when printed out right before you’re about to submit the remainder of the paperwork to the lender/broker.)
  5. Any retirement or investment account statements.(Same as above)

The best advice that I can give is that if you’re unsure of how your unique situation may affecta purchase orstackofpapersrefinance, dig up these documents, and go see your mortgage professional. A little face time and number crunching can save you a lot of trouble. I’ll continue with some additional info related to this post with regards to the costs that you can expect to see for closing a purchase.

Today’s market was mixed. Stocks recovered a bit from yesterday’s slide. Rates are holding

steady right around 4.9% –

DNJ Mortgage
1350 Sunday Drive.
Raleigh, NC 27607
919.459.6533