North Phoenix Agent Blog

I’m noticing an uptick in the number of roadside cardboard signs that have something to do with real estate lately. You know the kind - here in Phoenix they’re usually hand-inked, on cardboard or oak tag, stuck in the ground with a stake.

Surely it’s a function of the bad economy, the looming recession, the credit crisis and the housing ‘bubble’.  Whatever, I figured it would make a good blog post. Here’s today’s Real Estate Road Sign:

Here’s the thing. A ton of people would qualify to buy a home - any home - with $500 down. The amount of the down payment is a function of 2 things - 1) the contract you negotiate with the seller, and 2) what sort of loan program you qualify for.

You don’t need to call somebody who advertises on the roadside to get a $500 down house. In fact, I submit that it’s probably not a good idea to get a home mortgage from somebody who advertises on the roadside with a cardboard sign. To buy a home with $500 down, you just need to speak with a reputable lender, and see if you qualify for a loan program that allows a low down payment.

Veteran? Done. You can buy a house with $500 down - use the VA loan program. eHow tells you how to figure out if you qualify, but I take no responsibility for their sponsored lender links.

First time homebuyer?  Done and done, and then some. You can buy a house with only $500 down - use a standard FHA loan. Or use an AmeriDream loan. Or use Nehemiah Corporation to buy your slice of the American Dream. Go through Maricopa County’s Home In Five program and get your downpaymnet as a gift. Try the Down Payment Guy website, which advertises homes for sale on the regular MLS that are owned by seller who agree up-front to partcipate in a program like these. But note that the DownPaymentGuy steers buyers to their approved stable of lenders, and you can use any lender you choose.

Not a first timer, but still cash-strapped? There are FHA programs you qualify for too. My favorite blogging lender Shailesh Ghimire explains FHA loans.

When you see a road sign like this one, remember 2 things: 1) You can work with any lender you want and still potentially qualify for a $500 Down home purchase.  2) Doing business with a “lender” who advertises on the roadside is probably not a great idea. Buying a “new in plastic, pillow top” mattress off a road sign might be OK. But selecting the single most expensive financial asset you’ll ever own in your life off a road sign is potentially a recipe for disaster.

Related Posts at NorthPhoenixAgent

• How Much Do I Need for a Downpayment
• Earnest Money Defined
• Buyer Beware - Backing Out Can Be Expensive
• Why Your Lender Shouldn’t Be Your Friend
• No Money For a Down Payment?

Related Posts By Other Excellent Bloggers

• FHA Mortgage Insurance Rates Now Higher If Your Credit is Bad (AZ Mortgage Guru)
• How Your FICO Score Determines Your Mortgage Rate (by the XBroker ; not light reading but well worth your time)

Are you a first time home buyer shopping in Arizona? If so, you’d better double time your shopping trip. Starting next month it’s going to get more expensive to buy a home in Arizona.  Why?  The rules for PMI are changing.

PMI is Private Mortgage Insurance. It’s required on any home loan made without at least 20% down payment. It protects the lender against the risk that you, the less-than-20%-down buyer, will default on your loan.  Your monthly mortgage payment is higher, but that increase is way less painful than saving 20% which could take years and years for most of us.

Starting in March 2008, the nation’s 2 biggest PMI issuers are restricting who gets a PMI policy. Industry leader MGIC Investment Corp’s limit is a minimum of 5% cash down; it’s 3% for competitor PMI Group. The change applies in areas the companies consider “restricted markets”.  These markets include the entire states of Arizona, Florida, and Nevada, as well as the metropolitan areas of Washington, D.C., Detroit, Chicago, Boston and Atlanta.

This change will hit first timer buyers hard, since they’re rarely rolling around in spare cash.  Less than 3% to 5% cash down = no PMI policy = no home loan = no new home smell in your future.  What’s a cash-strapped buyer to do?

1. Hurry. If you’re buying to live in it and plan to stay 5+ years, don’t worry about whether home prices will fall a little bit more in the rest of 2008 and 2009. There are 55,000 Valley homes to choose from, Sellers are being exceptionally accommodating, and interest rates remain relatively low. It’s a buyer’s market like we haven’t seen in decades. Bold buyers can make a killing, long-term.
2. Hope that your lender can get you a PMI policy from somebody other than the 2 big boys in the game, MGIC & PMI Group.
3. Use a Down Payment Assistance program like AmeriDream and Nehemiah Corp. But note that these have time limits too. They won’t be around forever.
4. Calculate how long it would take you to save 20% on your expected home purchase. Then evaluate whether buying now and risking a little price deflation in 2008/09 is better or worse than waiting X years till you have 20% down saved. For most buyers, buying sooner makes more sense than waiting & saving.
5. As long as you’re calculating your savings rate in #4 above, be realistic. On paper I can save tens of thousands per year. In reality, my savings account needs a few human growth hormone injections to beef it up. There’s always a movie to see, a new gadget to buy, or a round of drinks to spring for. Most of us don’t save as much as we think.
6. Don’t forget that regular mortgage interest is tax deductible, and so are PMI payments. You’ll have a fat deduction on your federal income tax statement that might offset some of the temporary pain of budgeting to pay a mortgage every month.

 New PMI policies are just another brick in the wall of reasons to buy an Arizona home now if you’ve been fence sitting for a while.

This is a truly lazy post, just a reposting of an interesting idea I saw on CreditBloggers which I read regularly through my Google reader.

Apparently, Capital One has a build-your-own credit card. See http://www.creditbloggers.com/2008/01/capital-one-say.html

So in addition to having rampaging Vikings in their TeeVee ads, they have a really pretty hook-y idea for getting folks to sign up for a new credit card. Deviously clever!

Don’t Get Old Trying to Save a Down Payment!

AmeriDream is a fantastic resource for first time buyers who are having trouble saving the downpayment on house. With price appreciation like we’ve seen in the past few years, even 3% of a home purchase price can be extraordinarily difficult for first timers to save.

(For those who like my writing style, read on. If you just want to cut to the chase, scroll down to below the smiley face.)

Three percent of the median home price in the metro Phoenix area is about $8,000. Plus buyers need another $2,000 to $4,000 for closing costs. It’s super important to have some savings leftover after the housewarming party for unforseen home emergencies, which pop up like those Whack A Mole games at the arcade. Then, it’d be nice to have some money to cover a few cosmetic upgrades once you’re in the house - like maybe switching out the lighting fixtures from 1973 - ’cause the median metro Phoenix price of $263,000 doesn’t buy granite counters and stainless steel appliances in this town. All in all, you’re gonna need about $10,000 or $15,000 grand to do it right. Sure, you could skate by with the bare minimum savings, but being house poor leads to lots of dinners based on ramen noodles.

How in the heck are first  timer homebuyers supposed to save up all this money?! You could do what my cousin in Pennsylvania did. He lived with his mother in law for 3 years while he (an architect) and his wife (a loan processor) saved pennies. They accumulated $40,000 at  the end of the three years. Bought a house and six months later my cousin saved his marriage by refinancing to pull out a little equity. He used it to “help” send his mother in law to far away Florida.

Or, you could rely on AmeriDream. Here’s how it works. Federal housing law allow 5 types of people/organizations to gift down payment money to a home buyer. Sellers are expressly banned from gifting down payment money to buyers. Group 1 is parents. Parents are allowed to gift money to kids. (There’s 4 other categories: government entity, religious organization, 1 I can never remember, and the 1 below).

There’s a lovely little loophole in federal law which allows a non profit agency to gift down payment money to buyers. Somewhere back in the 1990’s a couple of nonprofits appeared and did just that. Nehemiah Corp is the other one I’m aware of.

These nonprofits set up a neat little triangle, so to speak, between the seller, the buyer, and themselves. The seller agrees to make a “donation” to the nonprofit org in the amount of the buyer’s needed down payment, plus a small administrative fee that’s usually about $300. The nonprofit turns aroun and “gifts” the down payment (minus their admin fee) to the buyer. The title/escrow company coordinates it all after the Realtors write it all up in nice legalese. And it’s all totally legal, tested by dozens of lawsuits. Most recently, last October HUD sued AmeriDream and got their shirts handed to them in federal district court.

AmeriDream claims to have given out over $400 million in down payment assistance grants which translates into over $14 billion in housing. Nehemiah says they’ve given out over $999 million in grants. I love this country!

If you’re a buyer who wants to use a down payment assistance program, ask around until you find a Realtor and a lender who done these types of deals before. There’s only a little extra paperwork involved, but the deal goes a whole lot smoother if “your people” know how to explain it to the seller properly. Hmmm…. I’m a Realtor who’s done AmeriDream deals. Nehemiah Corp too. Hmmm….

President Bush today announced a plan to give homeowners with mounting mortgage debt a chance to refinance their adjustable rate, subprime loans. Estimates are that 80,000 homeowners would be helped by this program.

An hour before the President’s speech, Fed Chairman Ben Bernanke spoke in Jackson Hole, Wyoming. He said, “Obviously, if current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the rest of the economy” and “We are following these developments closely.” In Fed-speak, this almost certainly means a rate cut is coming at the Sept 18 meeting.

The web & traditional media is chock-full of commentary about this issue already. My take? Bush & Bernanke put a Band-Aid on a gunshot wound.

Today’s plan lets 80,000 homeowners refinance under expanded FHA lending rules, provided they have good credit and at least 3% equity in their homes. The plan begins in early 2008. What’s not good about that, right?

But, it’s commonly thought that 2 million people might be in trouble in the coming 12-18 months due to a softening housing market (read, “falling prices”) and re-setting adjustable rate mortgages (read, “your payment’s going waaaaaay up”).

The people really hurting in this mess are those who (1) can’t afford their payments post rate-reset, and (2) live in a house that’s not worth what they owe on it because local housing values dropped. To put salt in the wound, these folks often ruined their credit by missing payments.

And the President’s plan leaves 1.9 million of them out in the cold. 

One hopes that the talking heads on tonight’s news are right when they say that more relief is likely to come in months ahead.