Category Archives: Mortgage Loans

Kansas City Mortgage Lending, Kansas City Home Loans, Kansas City Mortgage Loans

Shawnee Kansas Home Buyer’s Head Is Spinning As We Near Closing

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Checking The Pulse Of The Kansas City Real Estate Market

Despite the preparation we go through to get home buyers comfortable for their real estate closing, I often see the anxiousness in many buyer’s eyes as we head towards closing. I know that with any big life decision, there’s the concern of whether something is being overlooked. When I’m preparing for a flight out-of-town, a whole lot is running through my head right until take-off. So I can certainly understand buyers being concerned about whether all the i’s are dotted and the t’s are crossed.

This doesn’t just apply to first time home buyers either. Every real estate transaction is different and it’s important that both home buyers and home sellers alike make sure their real estate closings are ready to go off without a hitch. Fortunately, real estate closings are very similar in both Kansas and Missouri. Being licensed in both states means I have to be prepared for some slight differences in how closings occur on opposite sides of the state line but, overall, most buyers hardly notice the difference.

The first thing to know about a closing is that the buyer’s lender will seemingly handle 90% of the buyer getting ready for their closing. The title company – in additional to providing a title search and guaranteeing clear title to the property – will seemingly handle 90% of the  seller getting ready for their closing. But in actuality, both the lender and the title company have to work in concert to get everything ready to go and in producing the HUD Settlement Statement. The HUD is the document where both the buyer and seller can see all the final figures of the real estate transaction neatly on one document.

If the lender doesn’t get the final loan figures to the title company until the last-minute, that keeps the title company from being able to get the HUD Settlement Statement to the seller for review at least a day prior to closing.  It’s never ideal for either a buyer or seller to be sitting at the closing table and reviewing the HUD Settlement Statement for the first time. If that does happen and there’s an error, I’ve had to sit with a client for hours while the issue is handled.

On Kansas City closings I’m involved with, the title company providing the title insurance on a property handles the vast majority of the closings on those transactions as well. Most of the rest occur at the lender’s office. All lenders could close their own loans, but most prefer to turn the closing process over to the title company. Title companies don’t mind it because it’s an additional revenue center for them. Most of them also do a very good job of going over the closing documents with both buyer and seller.

A common misconception is that the buyer and seller show up at the same place at the same time to sign the closing documents. That rarely occurs and in most cases the home buyer never even meets the home seller. The real estate agents in the transaction communicate often and help to facilitate a smooth transaction. The timing of the buyer’s and seller’s closings is also often misunderstood. The typical real estate sale contract states the closing will occur on or BEFORE the close date written into the contract. The date written in is indeed the day that 99% of home buyers will sign their documents and the deal becomes official. But sellers can – and should – go ahead and sign their closing documents a day or two early. This helps to ensure that everything is ready to go for the buyer’s closing.

Most seller’s closings are pretty simple and many take less than a half hour. Buyer’s closings usually involve a lot of loan documents and lender requirements and a can take anywhere from one to two hours to complete. Before a buyer is done with their closing, they’ll probably have signed the HUD Settlement Statement, a Warranty Deed, a Truth In Lending Statement, a Proration of property taxes agreement, a monthly mortgage payment letter, the loan Note which is the borrowers “guarantee” to pay the loan, a warranty deed, the mortgage which is what places a lien on your home and keeps you from selling it outright, and no doubt a few others documents too.


Posted by Jason A. Brown

FHA Loan Changes Will Reduce Up Front Costs But Raise Annual Premiums For Kansas City Home Buyers

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Checking The Pulse Of The Kansas City Real Estate Market

Back in April up-front FHA mortgage insurance premiums were raised from 1.75% to 2.25% of the loan amount. This was done in an effort to replenish the FHA reserve funds and keep the program afloat. Considering that more than half of loans being done today are FHA loans, I can’t think of anything more important right now than making sure FHA doesn’t cease to exist. Unfortunately the increase to up-front insurance premiums hasn’t gotten FHA completely healthy and now the powers that be are implementing a new plan.

Beginning October of this year, new FHA changes will include lowering the up front mortgage insurance premiums all the way down to 1% and then raising the annual premiums paid by FHA borrowers significantly. The new higher annual premiums will follow the following guideline: .90 basis points on loans with 5% or less down payments and .85 basis points for loans with more than 5% down payments. These changes will not have any affect on FHA loans already in progress.

Under the current structure, a $100,000 FHA loan would cost the borrower $2,250 in an up front mortgage insurance premium and then around $550 a year in yearly premiums. Under the new structure going into effect in October, the same borrower would pay $1,000 in an up front mortgage insurance premium and then around $900 in annual premium. If you analyze this for a short while, you’ll see that at some point around year 2 of the loan, you’ll be at a break even point either way. But after year two, you’ll be paying about $350 more per year (for every $100,000 amount borrowed)  thereafter.


Posted by Jason A. Brown

Choosing Between A Fannie Mae Underwritten Loan And A FHA Backed Loan When Buying A Home

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Checking The Pulse Of The Kansas City Real Estate Market

Neither Fannie Mae or FHA provide borrowers home loans. Rather than providing loans, both institutions BACK the loans that are being made by local mortgage lenders. So, in other words, they’re what’s making the loans possible. In the future, when you hear the words “Fannie Mae”, you should think conventional loans. When you hear the term “FHA”, you should think government backed loan. FHA loans don’t have the exotic loan type options available on Fannie Mae backed loans (i.e. ARMS) but what they do have is less restrictive guidelines for qualifying for the loan. For this reason, FHA loans have more costly up-front fees than your typical Fannie Mae underwritten convention loan.

Fannie Mae is an investor who buys the notes from the mortgage lenders making the loans. This minimizes the risk the lender has in providing a loan, as long as the mortgage lender runs the borrower through the Fannie Mae underwriting system.  If the borrower’s debt-to-income, credit scores and the property in question all meet Fannie Mae’s guidelines, the borrower is on their way… assuming they have a minimum 5% down payment and at least a 720 credit score. For borrowers with 800 credit scores and a 20% down payment, I can’t think of any reason they’d want to go the FHA route.

The FHA loan program is one where the loans are being guaranteed by our government. The closing costs are higher on a FHA loan, but there’s plenty of reasons a buyer may choose to go this route. One of the big reasons is because FHA loans only require a 3.5% down payment and an upper 500’s credit score. And, unlike Fannie Mae’s cut and dried underwriting process, FHA may take a deeper look into your circumstances when deciding whether you qualify for a FHA loan. Also, many borrowers who have a foreclosure or bankruptcy on their record can qualify for a FHA loan quicker than they’d qualify for a Fannie Mae backed loan. Another advantage of FHA loans is that a borrowers relatives can gift them the money used for the down payment in purchasing the home.

Posted by Jason A. Brown

I PITI The Fool Who Doesn’t Know What This Acronym Means When Buying A Home

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Checking The Pulse Of The Kansas City Real Estate Market

When getting Pre-Approved for a home loan, there’s more to the process than just rushing to get the Pre-Approval Letter in hand. Yes, that letter tells you the lender is willing to give you a loan.  But what it doesn’t tell you is how much your monthly mortgage payments are going to be. And, if you ask me, that’s the most important aspect of getting Pre-Approved. Of course closing costs are very important too, but it’s the monthly payments that you could be faced with making for 5, 10, 15 years…

So be sure you consider each component that makes up your monthly mortgage payment. PITI is an easy acronym to remember for the four core aspects of a monthly mortgage payment. They stand for Principal, Interest, Taxes and Insurance. The Principal is the portion of each monthly payment that’s being deducted off the total amount you still own on the home. In other words, if you’re selling your home later and $5,000 of your monthly payments over the years have gone towards principal, that’s $5,000 in equity you’ve built up by way of your monthly payments.

The next aspect is Interest. We all know what this is. It’s how the lender profits by loaning you the money to buy the home. If the principal and interest portion of your monthly mortgage payment is $1,000 per month, possibly $950 of each payment is going to interest. This is certainly the case in the first several years of a mortgage loan because mortgage loans have the earliest payments front loaded with interest.  This is how mortgage loans have been done for decades and essentially your monthly mortgage payments are being recalculated each month based on the new loan balance (after taking your previous month’s payment into consideration). In case you’re wondering at what point would the principal pay-down portion of a monthly mortgage payment equal the interest portion, I belive it’s somewhere around year 20 on a 30 year mortgage loan.

The next aspect is Insurance. By insurance we mean Homeowner’s Insurance – a.k.a. Hazard Insurance. If you’re home burns down, Homeowner’s Insurance is what’s going to rebuild the home. Why do lenders require this be included in your monthly payments (if you have less than a 20% down payment)?  Well, for a buyer who has just a 5% down payment, it would mean the bank actually “owns” 95% of the risk in your home. So, if it burns down, the borrower lost 5% of the asset but the lender would be losing 95%! If a borrower has more than a 20% down payment, most lenders feel the borrower has such a big interest in making sure the home has insurance in place that they don’t require it be included in the borrower’s monthly mortgage payments.

The next aspect of the mortgage payment is Taxes. By taxes we mean County Property Taxes.  Your lender doesn’t want a lien placed on your home by the government in the event you don’t stay current on your property taxes. So, if you have less than a 20% down payment, the lender will collect your property taxes in your monthly payment. This portion of your monthly payments goes into an escrow account so the money is there when the property taxes actually come due.  This is important to the lender because if they have to foreclose on you in the future, they won’t have to worry about the government standing ahead of them in line with an interest in the property.

But wait… there’s more. Although PITI are the four main aspects of a monthly mortgage payment, if you have less than a 20% down payment you can also expect to add a fifth critical item to the equation — Mortgage Insurance. Borrowers with less than a 20% down payment are considered higher risk loans. To cover this risk, lenders will require the borrower to pay for Mortgage Insurance, which means the borrower is paying for insurance that guards against possible losses the lender might incur from the borrower defaulting on the loan. Also, some condo and townhome association dues are collected as part of the borrower’s monthly mortgage payment, thus adding a sixth component to the monthly mortgage payment for some borrowers.


Posted by Jason A. Brown

Congress Extends Tax Credit Closing Deadline For Kansas City Homes Already Under Contract

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Checking The Pulse Of The Kansas City Real Estate Market

An estimated 180,000 home buyers (according to my National Association of Realtors) were faced with losing the $8000 tax credit last week. Since the tax credit is no doubt what motivated many of these buyers to go under contract in the first place, it was important that an extension was given for the real estate transactions that hadn’t yet closed. Of course, leave it to Congress to wait until the last-minute to get off their butts and get something done. What they passed is a three-month extension and, although it doesn’t help buyers out currently looking for homes, the bill will save the tax credit for those buyers who were under contract prior to 4/30/10.


This bill was important not just for buyers counting on this tax credit, but also for many home sellers as well. There were many cases where the contracts were written with the stipulation that the transaction must close by 6/30/10 or the buyer could cancel due to loss of the home buyer tax credit — and get a full refund of their earnest deposit.  So everyone wins – except for our children who will no doubt face higher taxes to make up the billions we’ve just given away.

Much of the need for the extension came simply from mortgage lenders being inundated with too many closings at the same time. There were only so many hours in the day for lenders who were closing more deals than they ever had before. There were also many unpredictable Short Sales pushing closings past the deadline. Officially, the new closing deadline for the transactions under contract will be 9/30/10. With $21 billion already on our children’s plates to pay back, I sure hope these additional closings add some stability to our nation’s shaky economy and real estate market.


Posted by Jason A. Brown

Termite Inspections And Their Role In A Kansas City Real Estate Transaction

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Checking The Pulse Of The Kansas City Real Estate Market

Do you have to do a termite inspection when buying a Kansas City home? If not, should you do one anyhow? The answer to the first question is maybe. Some lenders require a termite inspection be done on any home on which they’ll be providing a loan. If the lender doesn’t require it though, it’s up to the buyer whether they do one. But I can’t imagine any scenario where a buyer wouldn’t have a termite inspection done on the home they’ll be purchasing. For less than $75 in most cases, you’ll get the peace of mind knowing that termites haven’t eaten up the structural supports – or done other damage – to a home.


Per the base Kansas City Residential Real Estate Sale Contract, we refer to the inspection as “Wood Destroying Insect”. It’s the politically correct way to not single out just termites. I know you’re dying to hear the other types of wood destroying insects that might be present. Termites and carpenter ants are of primary concern but you can also check out this list of wood damaging insects. The inspection paragraph of the real estate contract states that termite treatment is the ONE thing that a seller is agreeing to address up front, if a wood destroying insect inspection finds evidence of any active infestation. The buyer doesn’t have to ask, demand or negotiate a treatment at that point. The seller would have to treat the property — as long as the inspection report is delivered to the seller within the inspection period.

So we’ve determined that a buyer would have to pay for the inspection and that a seller would be required to treat for the termites if any are found. But what if there’s damage to the structure from the termites? That’s open to negotiations just like any other item that may be found during a buyer’s standard home inspection. A buyer can ask for repairs to all, some or none of the damage that may be found. But a seller can also agree to make repairs to all, some or none of the damage that’s found. The inspection process sounds like a lot of fun, doesn’t it?

As one of my preferred home inspectors always tells buyers, it’s not a matter of IF you are going to get termites, it’s a matter of WHEN. Termites are hungry year round and over time will migrate to untreated feeding grounds (like your home). Here’s a great article on termites, what to look for, do-it-yourself tips and considerations to addressing a termite problem. Many home inspectors will include a termite inspection as part of the home inspection process. If you are a homeowner needing an inspection that’s not a part of the real estate process, most termite treatment companies will come and inspect your home free – with the hope that they DO find evidence of termites.

Here’s a list of some local Kansas City termite treatment companies…

Gunter Pest Management
Everett Milberger Pest Control
Orkin
Ragan Pest Control
Terminix
Weaver’s and Son’s Exterminators

Posted by Jason A. Brown

Only You Can Truly Decide How Much Kansas City Home You Can Afford

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Hands On The Heartland
Checking The Pulse Of The Kansas City Real Estate Market

As a Kansas City home buyer, the Golden Rule for how much you can afford is to simply ask yourself. No one is more qualified than YOU to decide what YOU can afford. Now a mortgage lender is going to tell you the max amount they’ll let you borrow. But that amount may be much more than you can or want to truly afford. And by afford, I mean how much you can “afford” to sacrifice other things in your life. It’s one thing to afford a $2000 a month house payment and another completely to be able to do so without compromising your favorite boat or expensive dining habits.


So when the lender says here’s your Pre-Approval Letter and you can buy up to a $290,000 home, the better question is “how much will my payments be? Once you know that you’ll know if buying a $290,000 works into your master plan. If it doesn’t, then maybe you should be looking at $200,000 or $250,000 homes. It’s up to you and this is not something than any loan officer, Kansas City Realtor, friend or family member can decide for you. When a lender pre-approves you, the underwriting guidelines are designed to minimize the lender’s losses and are not in place to protect your  future finances. A good loan officer will certainly help you with that, but the underwriting guidelines that spit out a Pre-Approval Letter don’t factor it into the equation.

So what are some good rules of thumb when deciding what’s the right amount of mortgage payment? A good general rule of thumb is that your house (including principal, interest, taxes, insurance and PMI on the loan and also including your HOA dues) should not take up more than 25% of your gross income. But if you use this rule of them then you’ve already broken the Golden Rule in  the first paragraph. I know that I’m seeing buyers purchase homes at double to quadruple the amount they make per year.  In other words you could use as a general rule of them that someone who makes $50,000 may be able to purchase a $200,000 home — of course that’s making a whole lot of assumptions. But you would never use a rule of thumb anyhow when making such an important decision, would you?


Posted by Jason A. Brown
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Kansas City Has The Lowest Average Mortgage Interests In The Country

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Checking The Pulse Of The Kansas City Real Estate Market

I have covered in the past why it’s so important for home buyers to consider today’s historically low interest rates when evaluating their potential home purchase. I believe many Kansas City homebuyers will look back and realize the lower interest rate they obtained were much more important than the few thousand they might have “saved” by waiting for home X to drop their price – or for home Y to come on the market. Of course, NO ONE knows the future, so we’ll see.


What we do know is that today’s low interest rates will be a huge factor for homeowners who stay in their home an extended period of time. According to MSN.com, Kansas City is the only metro market in the United States with average interest rates below 5%. The average buyer can secure a 30 year fixed rate loan in Kansas city for just 4.94 — that is amazing!  Here’s the top 5 list according to MSN Money…

1. Kansas City MO/KS – 4.94%
2. Houston TX – 5.03%
3. Dallas TX – 5.06%
4. Virginia Beach VA – 5.06%
5. San Antonio TX – 5.12%


The article attributes the low interest rates in the above areas to the same things that have kept our local market from completely crapping out during difficult economic times – we didn’t see the huge fluctuations and appreciation that many U.S. real estate markets experienced.

Posted by Jason A. Brown

Kansas City Real Estate: The Short Story

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Checking The Pulse Of The Kansas City Real Estate Market

I’ve heard everyone and their brother blamed for the real estate market downturn, but this 4 minute, 14 second video hits home all too well for many Kansas City homeowners. If you’re not able to find a sliver of humor in our current real estate market, do NOT watch this video…

Posted by Jason A. Brown

April Report Shows Kansas Homes Sales Fall 12% In February

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Checking The Pulse Of The Kansas City Real Estate Market

The Kansas Association of Realtors is reporting that February 2010 homes sales were down 12% from February 2009. All February stats were affected by the fierce winter weather but this is discouraging news nevertheless. It’s especially discouraging since home sales nationally INCREASED 7% over the same period. The actual drop was 1,463 home sales in February 2009 to 1,699 during February 2010. This news follows a 7% drop in February’s stats compared to January this year.


The Kansas Association or Realtor report concludes – using February sales rate and number of listings on the market at that time – that there’s  11.3 months of inventory on the market in the state of Kansas. Mortage rates also jumped from January to February with Freddie Mac reporting the average 30-year fixed rate at 4.97% in January but rising to 5.21% in February.

There was good news nationally with March building permits for new construction rising more than 7% from February to March of this year. Locally in the Kansas City metro area, 213 new homes went under contract during February, compared to 230 in March. I assume most of these are build jobs and that bank’s are loosening the reigns on spec loans after the recent news that more foreclosure sales were scheduled nationally last quarter than in any quarter dating back to January 2005.

Posted by Jason A. Brown