Many buyers confused about mortgage process

Most homeowners, especially first-timers, borrow a large amount of money to buy a home. But how much do they know about the process? A survey conducted by Ipsos Ipsos for Zillow attempted to find out.

According to the Zillow Mortgage Marketplace survey of first-time homebuyers, they answered one-third (32.5 percent) of the questions about basic mortgage information incorrectly.

For example, one-third (34 percent) of first-time homebuyers don’t realize it’s possible to get a home loan with a downpayment less than 5 percent.

Many first-time buyers also don’t understand how to secure the best possible interest rate and loan terms. One-quarter (26 percent) incorrectly believe they’re obligated to close their loan with the lender that pre-approved it; and, separately, 24 percent incorrectly believe that the best interest rates and fees can always be found through the bank they currently use.

Additionally, one-third of buyers (34 percent) believe all lenders are required by law to charge the same fees for credit reports and appraisals, even though it’s best to shop multiple lenders to compare rates and fees.

Confusion also reigns after the home sale. Almost half (47 percent) of current homeowners believe they must wait at least one year between refinancing.

“All too often buyers focus on negotiating a lower home price and ignore the importance of finding the right loan,” says Erin Lantz, director of mortgages for Zillow. “If a homebuyer can lower their interest rate by even half a percentage point, they can not only increase their purchasing power, but save thousands of dollars over the life of the loan.”

Additional survey findings

• One-third (34 percent) of polled prospective homebuyers do not know what the term “annual percentage rate” (APR) means. The annual percentage rate (APR) is a yearly rate that reflects the true cost of a mortgage and is inclusive of the interest rate, points, mortgage insurance (when applicable), and other fees, including origination and underwriting fees. The APR will typically be higher than the interest rate quoted by lenders, and should be used as a starting point when comparing loan quotes between lenders.

• Half (50 percent) of prospective homebuyers do not understand that mortgage rates change throughout the day. In reality, much like the stock market, mortgage rates can change rapidly. To get the optimum rate, it is important to monitor rates and shop around.

• Nearly one-third (31 percent) of current homeowners incorrectly believe that you must wait seven years after a short sale or foreclosure to purchase again. In most cases, homebuyers%2

Citizens will shrink, but not because of higher rates. A legislative session wouldnt be complete without an insurance reform bill. The bill that crossed the finish line, SB 1770, started off big and controversial, calling for substantial rate increases for many of Citizens nearly 1.3 million policyholders and all new policyholders. The end product is still big — 75 pages — and includes a Florida Realtors priority: create a clearinghouse to enforce Citizens eligibility requirements. But it does not include a requirement sought by Sen. David Simmons R-Altamonte Springs that all new policies be actuarially sound. Simmons chaired the Senate Banking and Insurance Committee this session and negotiated a compromise between an ambitious Citizens reform bill passed by the Senate and a “lighter” version proposed by the House.”There were so many insurance bills this session that seemed to go in so many different directions, including huge rate increases. But early on we identified the one reform — an eligibility clearinghouse — that would do the most good for the most people without unleashing rate increases that could hurt Floridas economic recovery,” says John Sebree, Senior Vice President of Public Policy. “The legislation that did pass was the result of many long hours of negotiations between legislators, insurance companies and agents, consumer groups and Realtors.”Heres what the bill accomplishes:• All applicants for Citizens coverage will have to go through a clearinghouse to establish eligibility. If applicants can obtain private market coverage at a cost thats within 15 percent of the Citizens premium, they are ineligible for Citizens. Incidentally, this is current law but easily circumvented.• Currently, homes with a replacement cost of up to $1 million are eligible for Citizens coverage. Beginning in 2015, the maximum replacement cost will drop $100,000 a year for three years. In 2017, then, homes with a replacement cost greater than $700,000 will not be eligible for Citizens coverage. This wont apply to homes in areas where the Office of Insurance Regulation determines theres no “reasonable degree of competition,” such as the Florida Keys.• Removes Citizens eligibility for homes built or substantially improved seaward of the Coastal Construction Control Line after July 1, 2014.• Expands the Citizens Board of Governors to include a consumer advocate, who will be appointed by the governor.Effective: July 1, 2013, unless otherwise provided.

A mortgage without payments too good to pass up?

If you’re at least 62 years old and looking for a home, Seasons at Prince Creek West in Murrells Inlet has a new program aimed at you.Dock Street Communities, which owns the active-adult community, will sell a home with no mortgage payments to seniors for a downpayment of 30 percent to 50 percent.That means that the company would expect $126,000 down for a $300,000 home, said Scott Trembley, vice president of sales. But no more mortgage money would be required.Buyers can pass their homes on to heirs or just give them up when they die. Trembley said heirs have to sell inherited homes, but they won’t have to pay a cent of what may be left unpaid, even if the sales price is less than what’s owed.“[The program] gives them an opportunity to purchase their dream house … at about one-thirds of the price,” Trembley said.The downpayment varies with age, he said, with older buyers having to pay less than the younger ones. Buyers may ask for a fixed or variable rate mortgage.Basically, the arrangement is a front-end version of a reverse mortgage that lets homeowners get the equity out of their homes before they die. When they do, heirs or a sale of the home would satisfy the loan.It is the only government-insured reverse mortgage. Lenders get the remainder of their money when the homes are resold, hopefully for more money than is owed on them.If a husband and wife are making the purchase, Trembley said they both must be at least 62 years old.Trembley said that Seasons is getting two to three calls a day because of the arrangement, which it has offered for about a month. The company now has 22 prospects in the pipeline and expects four to five closings this month.The program was created four years ago by the Federal Housing Administration, Trembley said, but not advertised. He heard about if from customers, researched it and instituted it at Seasons. Officially, it’s called a home equity conversion mortgage, or HECM for short.Trembley said that Seasons has 123 home sites left, which he estimated will be gone in 1 1/2 years.“We’re always building inventory homes,” he said. “We have 10 to 12 homes on the ground.”

In March, Florida’s housing market reported increased closed sales, more pending sales, higher median prices and a reduced inventory of homes for sale, according to the latest housing data released by Florida Realtors®.

“Florida’s housing market continues to demonstrate its recovery – March marks the 15th consecutive month that the statewide median sales prices for both single-family homes and for townhouse-condo properties rose year-over-year, according to Florida Realtors’ data,” said 2013 Florida Realtors President Dean Asher, broker-owner with Don Asher & Associates Inc. in Orlando. “The median price is up more than 15 percent for both single-family homes and for townhouse-condos.

“Meanwhile, buyer demand is increasing, but supply continues to be constrained in many areas. In March, the median days on market (the midpoint of the number of days it took for a property to sell that month) was 57 days for single-family homes and 61 days for townhouses and condos. That means 50 percent of homes on the market in Florida sell in two months or less.”

Statewide closed sales of existing single-family homes totaled 19,631 in March, up 9 percent compared to the year-ago figure, according to data from Florida Realtors Industry Data and Analysis department in partnership with local Realtor boards/associations. Closed sales typically occur 30 to 90 days after sales contracts are written.

Meanwhile, pending sales – contracts that are signed but not yet completed or closed – for existing single-family homes last month rose 23.4 percent over the previous March. The statewide median sales price for single-family existing homes last month was $160,000, up 15.2 percent from the previous year.

According to the National Association of Realtors® (NAR), the national median sales price for existing single-family homes in February 2013 was $173,800, up 11.3 percent from the previous year. In California, the statewide median sales price for single-family existing homes in February was $333,880; in Massachusetts, it was $278,000; in Maryland, it was $224,048; and in New York, it was $220,000.

The median is the midpoint; half the homes sold for more, half for less. Housing industry analysts note that sales of foreclosures and other distressed properties downwardly distort the median price because they generally sell at a discount relative to traditional homes.

Looking at Florida’s year-to-year comparison for sales of townhouse-condos, a total of 9,957 units sold statewide last month, up 1.1 percent compared to March 2012. Meanwhile, pending sales for townhouse-condos last month increased 10.6 percent compared to the year-ago figure. The statewide median for townhouse-condo properties was $120,000, up 15.9 percent over the previous

Fee-laden FHA mortgages cost more than private loans

WASHINGTON – April 19, 2013 – Fees for low-downpayment home loans backed by the Federal Housing Administration (FHA) rose on April 1 for the third time in two years.

The agency upped its annual premium by 0.05 percentage point to 0.1 percent, depending on the loan amount and the loan-to-value ratio. That is on top of an earlier 0.1 percentage point increase in the annual fee in April 2012, in addition to an increase in the upfront mortgage insurance premium to 1.75 percent of the loan amount.

Part of the reason for the changes is a hope that it will convince borrowers to scale back their use of government backing for their mortgage – a likely result, considering that private mortgage insurance (PMI) with a mortgage from a private lenders is now less expensive compared to FHA financing.

Over a five-year period, for example, borrowers with a 760 FICO score who put down 5 percent on a 30-year, $170,000 mortgage could save over $4,000 by opting for a loan insured by Genworth Financial instead of FHA.

Lenders are warming up to home shoppers lacking big downpayments as the housing market improves, new data show.

In the first quarter of this year, 19 percent of conventional loan offers made by lenders on the LendingTree online exchange were for loans with downpayments between 5 percent and 10 percent, LendingTree says.

That was up from 6 percent of offers the same time last year and just 1 percent of offers two years ago, LendingTree says.

Meanwhile, the number of lenders quoting non-Federal Housing Administration loans with 5 percent to 10 percent downpayments on Zillow Mortgage Marketplace is almost double what it was two years ago, Zillow says.

The growth of the availability of low-downpayment loans is notable in that, following the housing bust, those consumers had little choice outside of generally higher-cost loans from the FHA. “For years, it’s been FHA or nothing,” for the low-downpayment borrower, says Guy Cecala, publisher of Inside Mortgage Finance. “This shift is a sign that mortgage origination is loosening up.”

But the industry is still a long way from the easy-lending standards that caused the housing bust. Borrowers now must show a strong credit history and documented income to get loans, Cecala says.

Several factors are driving more low-downpayment loans outside of the FHA, including:

• Higher FHA costs. While the FHA requires just 3.5 percent down, its annual insurance premiums have more than doubled in the past two years. The last increase took hold April 1.

The higher costs are “causing a shift back toward conventional loans,” says Cameron Findlay, chief economist at Discover Home Loans.

Following the latest rate increase, FHA applications for home loans fell by almost 14 percent for the week ended April 5 while applications for conventional loans rose more than 5 percent, the Mortgage Bankers Association says.

• A rebounding private mortgage insurance industry. Lenders generally don’t make loans that they can’t resell to mortgage giants Fannie Mae or Freddie Mac. While Fannie Mae will buy a loan with as little as 3 percent down, and Freddie Mac at 5 percent, loans with less than 20 percent down require borrowers to also get private mortgage insurance.

When the housing market crashed, the private mortgage industry lost billions and such insurance was tough to get. Now, the industry is on the rebound and the cost for insurance for borrowers with higher credit scores has dropped. As such, more home loan borrowers are finding it a better financial move not to put 20 percent down and instead pay for the insurance, says Matt Johnson, loan officer at Sterlin