Today's Mortgage Rates

U.S. home prices posted a monthly increase for the first time in almost three years, according to the S&P/Case-Shiller Home Price Indices. Home prices inched up 0.5% for the three month period ending in May, compared with the three months ending in April. The index tracks home prices in 20 metropolitan areas.

Although home prices are still down 17% from a year earlier, the change seems to support other housing indicators that point to some encouraging signs in the housing market. So what does this mean for homeowners?

First, don’t start the party yet to celebrate an end to the recession. Although the gain is positive news, that doesn’t necessarily mean the nation’s housing woes are at an end. There are still plenty of folks struggling to make mortgage payments. Unemployment is at 9.5% and is expected to move higher, which means even more people are at risk of being unable to pay their mortgage loans. 

Second, even though it seems that the increase in home prices was partly attributed to fewer properties being sold through foreclosure or short sales (31% in June vs. 50% a year earlier), plenty of Americans are still at risk of losing their homes. RealtyTrac reports that there were 1,905,723 foreclosure filings in the first half of the year. That includes default notices, auction sale notices and bank repossessions.  

Third, not all housing markets showed an increase in home prices. Homeowners in hard-hit areas such as Las Vegas, Phoenix, San Francisco, Miami, and Detroit are among those who continued to see home prices drop. Homeowners in these areas will probably still have a tough time refinancing or selling properties. But people who can qualify for mortgage loans in these areas may pick up some good deals.

Some housing experts question whether the uptick in home prices is just related to increased home buying activity as the weather has warmed up. Others say that price drops on more expensive homes will likely depress the overall housing market going forward.

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows. Visit her Web sites, www.Huffwrites.com and http://supersavvyspender.blogspot.com/.

FHA loans are all the rage in today’s mortgage marketplace – and with as popular as they are, I am surprised that I don’t see more people taking advantage of the FHA 2/1 buydown mortgage.

Heck, the first home I ever bought, I personally used a 2/1 buydown with an FHA 30 year fixed mortgage – so I guess that might even qualify as an “official” endorsement.

2/1 Buydown: How It Works

The way the 2/1 buydown program works is fairly straightforward. You get a 30 year FHA fixed rate mortgage. You set money aside in an escrow account to “buy” the rate “down” for a period of 2 years. The 1st year of the mortgage, your mortgage payment will be calculated at 2% below what your 30 year rate is. The 2nd year of the mortgage, your mortgage payment will be calculated at 1% below what your 30 year rate is.  The 3rd – 30th year of your mortgage, your mortgage payment will be calculated at the “normal” rate.

So, for example, let’s say that you are going to get a 30 year FHA fixed rate mortgage at 6%. With a 2/1 buydown, you would put money aside for year 1 and 2 to “subsidize” your payment.

• Year 1  – your monthly payment would be calculated at 4% interest rate.
• Year 2  – your monthly payment would be calculated at 5% interest rate.
• Year 3-30 – your monthly payment woudl be calculated at 6% interest rate.

Now – the FHA 2/1 buydown program is not something that you get directly from FHA — remember, FHA only insures your loan. The FHA 2/1 buydown program is something that you can get from several different FHA lenders.

There are also 1/0 buydown programs from lenders — which follow the same concept. There is money set aside to “subsidize” your payment for the first year of the loan.

2/1 Buydown: How Much Does It Cost?

How much does a buydown cost? Typically, with most lenders, I see the 2/1 buydown costing 2.5% of the loan amount. The good news is that you can often get the seller agree to pay for the 2/1 buydown! What kind of situation makes the most sense for a 2/1 buydown? Well, in my case – I took advantage of the 2/1 buydown program when I was in college and expected my income to increase over the next 2 years after I graduated, but there are probably a few other situations where the 2/1 buydown program can make sense.

Let’s face it: when buying a bank owned property, many times there are repairs that are going to be needed to the property.

Sometimes, a significant number of repairs.

If you are planning on financing a home that is currently owned by a bank and in need of repairs, one important thing to be aware of is which repairs will be required by FHA and which repairs will not be required prior to close by FHA.

Here is a list of repairs that — if the property needs it — will be required by FHA to be repaired prior to the loan being eligible for FHA insuring.

• All windows and window bars must working and have proper release latches and/or locks.
• All smoke detectors must be in working order.
• Inadequate access/egress from bedrooms to exterior of homes.
• Any missing shingles or roof tiles must be replaced by a licensed contractor and have a roof inspection done.
• If there is any evidence of structural problems, these must be fixed. Items such as visible foundation or ceiling cracks, missing, cracked, bubbled out or discolored drywall, dry rot, damaged outlets, damaged or missing home exterior must all be repaired.
• Due to lead based paint being used prior to 1978, any interior or exterior surface that has peeling paint that was constructed pre-1978 – the paint must be stripped and repainted.
• Lastly: “If the appraisal reports a potential property deficiency that may pose a threat to the safety of the occupants or the security and soundness of the property the lender will require an inspection of the condition to determine whether repairs are necessary to resolve the problem.”

Some of the somewhat surprising issues that are not required to be repaired by FHA in order to be eligible for FHA financing include:

• Missing Handrails
• Cracked or damaged exit doors that are otherwise operable
• Cracked window glass
• Any peeling paint or defective paint surfaces for any home built after 1978
• Minor plumbing leaks (such as leaky faucets)
• Defective floor finish/covering
• Evidence of previous (non-active) wood destroying insect/organism damage
• Rotten or worn-out counter-tops
• Damaged plaster, sheet-rock or other wall and ceiling materials in homes
• Anything that is generally considered “poor workmanship”
• Any trip hazards
• Any debris in the crawl space under the house
• Lack of all-weather driveway surface

All of these issues (according to FHA) are considered “cosmetic” and hence, not required to be repaired prior to close.

So if you are in the market for buying a home — particularly a bank owned property — it can be very important as you walk through (before you get the appraisal done which will also note these items) which items will be required to be repaired prior to closing and which ones FHA considers “cosmetic”.

And perhaps you were as surprised as I was to learn that as long as the latch on the bars on the windows was working, it didn’t matter that the window behind it was cracked.