TOM & CYNDEE
BROWNER - QUAD CITIES REAL ESTATE WITH RE/MAX
SERVING THE ENTIRE IOWA AND ILLINOIS QUAD CITIES
DAVENPORT - BETTENDORF - ROCK ISLAND - MOLINE & SURROUNDING COMMUNITIES
TOM & CYNDEE
BROWNER -
CRS, CRB, ABR, GRI, e-PRO, MRA
BROKER OWNERS OF RE/MAX BI-STATE - SERVING IOWA & ILLINOIS
1-563-388-0008 Office - 1-563-388-0083 Fax - 1-866-388-0083 Toll Free
1-563-570-7629 Cell Cyndee - 1-563-355-1616 Home - 1-563-343-1092 Cell Tom
Have a question? The answer is just a call or e-mail away. Contact us at tom&cyndee@quadcitiesrealestate.com
We know you want to sell your home for the most money, in the shortest time and with the least inconvenience. If you want serious advertising and effort from your agent, call or contact us for a FREE MARKET ANALYSIS of your present home. We are both Certified Residential Specialist by the Residential Sales Council. No obligation, of course. Call us on our private line at 570-7629, at RE/MAX BI-STATE or Contact us at tom&cyndee@quadcitiesrealestate.com - LOOKING TO BUY? Check out the services an Accredited Buyers Representative can mean to you.
CONVENTIONAL - VA- FHA FINANCING
When you are selling your home, one of the biggest problems is buyer financing. After all the strategy meetings with your Realtor, the open houses, the showings, offer presentation and final offer agreement, you find yourself at the whim of appraisers, bankers, private mortgage insurance companies and underwriters.
There are more rumors about finance than nearly any other element of Real Estate. What are the differences in finance? First there are the terms. Mortgages are generally amortized over 30 years, although there are 20 year and 15 year mortgages also. Then there are fixed rate and adjustable mortgages. Fixed rate are mortgages that remain at a constant interest rate over the period of the loan. Adjustable rate mortgages are mortgages that can change rates over the life of the loan. These changes can take place annually, or after the rate was fixed for 3, 5 or 7 years. Generally the shorter the fixed rate time period, the lower the starting rate. However, in recent years, the difference in rate between the one year arm and the 30 year fixed rate has not been enough difference to take the risk of the adjustable rate. There is one exception, that is the buyer who is going to be transferred within a short period, say 3 or 5 years. For them, the adjustable rate makes a lot of sense. The rate is lower on the adjustable rate loans because the banks are only risking the loss of possible revenues from raising rates for a few years instead of 30 years. Then you have Conventional, Veterans Administration and Federal Housing Authority loans.
Conventional loans are changing rapidly. They can now be 0% down, 3% down, 5% down or any percent above 5% that the buyer wants to invest. The 0% and 3% down require immaculate credit or higher interest rates. The 5% down and above are at the going quoted bank rates . There is private mortgage insurance of .005% of the principle amount that is collected from the buyer monthly with his payments. This is due on all conventional loans of less than 20% down, but the buyer can appeal to have it removed as soon as 20% down loan to value is reached either through property appreciation or principle reduction. Another way to avoid private mortgage insurance is a first mortgage at 80% at the going rate and a second mortgage at a higher interest rate for 20%. Often this is cheaper than paying the private mortgage insurance and also makes the interest income tax deductible, where the private mortgage insurance is not deductible.
Rates can vary from bank or mortgage broker to another lender, so buyers should shop around. The bank will send out an appraiser to verify that the property is worth at least as much as the buyer agreed to pay the seller. Any glaring possible flaws may cause the appraiser to demand an inspection by a competent professional in that field. However, the appraisers do not have a large laundry list to check as in FHA and VA. Conventional loans used to work on a 28% of gross income for total home payment, (principle, interest, taxes, insurance, private mortgage insurance) and 36 to 38% of gross income for all long term debt including charge cards, student loans, child support, auto payments, furniture payments, signature notes, loans, home and any other long term debt. These traditional qualifying percentages are now abandoned, and 41% of your gross income for all long term debt is used. All payments are calculated based on the minimum payment demanded to keep loan active and paid on time. Long term debt would be your house payment, student loans, charge card, car, child support, boat, motorcycle, signature loans and any other debt paid in installments where the payments will be due for another 6 months or more.
FHA is a government insured loan. The insurance is .038% that is added to the principle loan amount and another .005% of the principle and original PMI (Private Mortgage Insurance) and the insurance payment must continue until the loan is paid in full. FHA loans have a laundry list for Appraisers. Houses may fail if the grading is inadequate, if there is any loose or peeling paint, major foundation cracks, furnaces or roofs without a 2 year minimum life, and other items. Generally there is nothing for the seller to worry about if the home is in decent condition. If the appraiser flags the property for a violation, the seller merely has to make the repair to allow the transaction to close. These violations are health or value hazards and most sellers would not consider purchasing such a property with such violations, and therefore, should not sell one in that condition. Recent changes are making the potential buyer more in control and leaving the choice up to them. Pealing paint and other issues are no longer deal killers.
The reasons people go FHA rather than conventional are many. Credit problems, or past problems, less time on the job, less money, and the need to borrow some of their closing cost, The disadvantages is that the government sets the rate and that rate lags the market and is often 1/8 to a quarter of a percent higher than conventional loans. The private mortgage insurance is higher also. The advantages are the buyer can have a 41% long term debt ratio, may borrow most closing cost and until recently needed less down. Credit does not have to be as good, time on the job less, and because of higher ratios, the buyer can buy more home, perhaps yours. The private mortgage insurance used to stay on the mortgage balance for the life of the mortgage, however, it now can be removed when the buyer has 22% equity in the property.
VA loans are for veterans. The Veteran is charged a VA funding fee which is like Private Mortgage Insurance Policy, and this amount can be added to the principle amount borrowed. The loan is guaranteed by the government, and the veteran can go 0% down, just pay his closing cost. Again the interest rates can lag and be slightly higher than conventional rates. Again the appraiser has a laundry list of things to look for. The debt ratio is higher than conventional, but slightly lower than FHA due to the reserve formula.
In recent years, the Ameridream and Partners in Charity programs have appeared. In this, the seller is asked to donate a percentage to the program, which then takes a fee and gives the buyer closing cost and down payment. Yes it is legal, and before you get upset, most of these offers come in above asking price. If we are in a 3% discount to asking price sale pattern, and the offer is 3% above the asking price and they want 6% paid to Ameridream or PIC, the result is the same as an offer 3% less than the asking price. Risk is if the home does not appraise at the higher price. Advantage is that the home may be sold quicker.
For the seller, there is no difference in what kind of financing or if a program is used to make the sale. You sell your home, cash out and go on. If you are afraid that you have a problem with appraisal, you can always have an appraiser preview your home and let you know if you have a fatal defect. The cost is about $50.00 for the preview but will be normally abated if the appraiser is used by the buyer in the purchase of your home. It can be slightly more hassle than conventional, it is the government! Nothing to get overly alarmed about as a seller and a potential benefit for the buyer. The buyer may be able to buy now rather than wait, thus avoiding possible housing price and/or interest rate increases. You may get more money for your home than if you just left it on the market and waited for a traditional buyer to come along.