Monday, March 11, 2013

FHA Mortgage Insurance Increase and More Bad News for Buyers

On April 1st, 2013 the annual mortgage insurance (paid monthly as part of the PITI) will be increasing from a factor of 1.25 to 1.35 on the minimum down 30-year term FHA mortgage.

Currently on a $200,000 loan amount the monthly mortgage insurance would be $208.33, for case numbers assigned after April 1st the new 1.35 factor on a $200,000 would be $225 per month. Not an Earth shattering amount by any stretch, but considering four years ago the factor was only .55, on a $200,000 loan amount the old mortgage insurance was only $91.66 per month. It has only gone up over the past four years and here it goes up again.

Perhaps the bigger issue is what goes into effect on June 3, 2013, at that point any new FHA loans putting the minimum down will have monthly mortgage insurance for the life of the loan. The only way to get rid of it will be to refinance out of FHA. This unfortunately is a blow to using FHA, but for many people they don't have much of a choice because they only meet the guidelines for FHA, and not a conventional mortgage.

The reason behind these changes? Survival. Without it the FHA program, which has been around since 1934, would likely fold up and go away, that would be an enormous blow to real estate, and I hope we never see the demise of the FHA program.

Just to clarify a couple things that have come up recently, I have read two articles in the past couple weeks in magazines that have made it sound like someone can only get a mortgage if they have 20% down. That is not the case, on FHA a borrower only needs 3.5% down. Also, I have read that people who had foreclosure, bankruptcy, or short sale will have to wait forever to buy again, blah, blah, not true, the universal rule for FHA is worst case scenario after 3 years or less someone is eligible for FHA financing again. So be aware of some of the misinformation out there, when in doubt consult your FHA 4155 guidelines, or contact me and I will get you the answer.

Have a mortgage or credit question you would like for me to cover on this blog? Shoot me an email so I can address it. If you want to apply for a mortgage in Arizona give me a call at 480-203-4641, the application process is easy, and it only takes 10 minutes for me to get the information to get you started on your way to home ownership.

Patrick Ritchie
Mortgage Finance Instructor
Ritchie School of Real Estate Finance
480-203-4641 Cell

© Copyright 2013 Patrick Ritchie All Rights Reserved

Use Your Head Before You Shred

I came across an article for an upcoming shred-a-thon, and it sort of gave me chills:

PHOENIX - ABC15 is hosting a shred-a-thon on Monday, March 18 to help you protect your personal information.

If you have piles of important personal documents lying around after filing taxes, bring them to participating UPS Stores around the Valley for safe shredding.

You can bring up to 50 pounds of documents to shred for FREE during normal store hours.

Seriously? You want me to bring 50 pounds of my most important personal documents for utter destruction? Is the fear of identity theft causing us to shred documents that we need to keep?

To a certain extent I am noticing more shred addicted clients than in years past. I gave a client a list of what we would need from them for their mortgage and they informed me they shred everything, so providing documents might be a problem.

I am all for reducing the likelihood of identity theft, I teach a class about it, and included a chapter on it in my book The Credit Road Map. However, I also highly encourage people to keep important documents, some can be replaced, some cannot. I have found the best way to save documents is to scan them as a .pdf file and save them on an external hard drive, and then place that hard drive in a safe deposit box at a depository institution. That is your best filing cabinet, the one that is there when you need it, and cannot be stolen by burglars in the event of a break-in. If you are extra anal like me, put that external hard drive into a freezer bag to protect it against water. A good friend of mine had the experience of his bank burning down to the ground, and the vault was flooded by the fire department. Those with boxes less than knee high had water logger boxes, just a heads up.

Some people swear by those services that backup your computer and say your entire hard drive can be put back on if something were to happen. Guess what? I had that service, paid an annual fee for it, and when my hard drive died it was supposed to be as simple as logging in, pressing a button, and everything would go onto my new laptop. It didn't quite work that way, in fact it didn't work that way at all, my hard drive was not updating to the cloud as it was supposed to do, and ultimately nothing transferred back onto my new laptop. Abiding by the childhood adage of always be prepared I had my trusty external hard drive, in fact I had a couple of them just in case one of them malfunctioned.

Here is a list of documents either needed for the mortgage process or that should just be kept:

- Bank statements: many people have gone paperless, and can access their statements online anytime they may need them. However, if you later leave that bank you will lose access to the statements, plan accordingly. For a mortgage you only need to provide the past two months.

- Pay stubs: some people are able to access online pay stubs from their employer, some cannot, for a mortgage you will need 30 days worth of pay stubs.

- Retirement account statements: just like bank statements, most people can access this online, for a mortgage you only need the most recent quarterly statement.

- W2's and 1099's: these are harder to access online and are important to save, the past two years are required for a mortgage.

- Tax Form 1040 plus all schedules: important to save, past two years needed for a mortgage, make sure you have copies of these saved somewhere you control. If you used the free version of a tax software it likely will not give you access to your tax work at a later point, I have had a few disappointed clients in the past who relied on that, if you paid for the service, the forms should be available as long as you know your login and password.

- Divorce decree: make sure you have a copy of this, you can always get a copy from the court if needed, sometimes online, but sometimes only in person. Save a copy because this important court order is something you will need for your mortgage, and you may need in the future if a disagreement arises.

- Bankruptcy paperwork: over the years I have discovered that many times consumers are never given their bankruptcy paperwork by their attorneys, but they don't know it, fortunately it is easy enough to obtain from the federal court if you need it. Another thing I have discovered is that it is easier for me to get it for the client than for the client to figure out how to get it themselves. I use the PACER system and can have the complete set of paperwork in a few minutes, and yes, I save it as a .pdf form for the client and give it to them. The discharge and all schedules are needed for the mortgage, other than that I am not sure when someone would need their bankruptcy paperwork, but if it has been in the past seven years it will be needed on a home purchase.

- Award letter for pension: since it tells the consumer how much they are receiving for their pension this is important to keep.

- Award letter for social security: same as above.

- Lease on rental: important to keep for at least the length of the statue of limitations in your jurisdiction for contracts, just in case. NOLO has a nice directory of the statutes of limitations for all 50 states, but do not rely on it for an important legal matter, for example it lists 2 years for injury in Arizona, which is true, but I unfortunately know dog bite law all too well in Arizona and the statute of limitations is 1 year, it is a unique exception to the 2 year rule, and the story as to why is way too long to get into, so use at your own peril:

- Old credit reports: unless you save a copy you can't replace this important document, you only need this to protect yourself when a creditor tries to change the date on a bad debt to try to keep it on there longer than seven years. Keep a copy of your credit reports every year, it is your best protection from financial bullying, don't be a victim.

- Documentation of paid debts: this is a tricky one, because now we could cross into hoarder territory, of which I have been a card carrying member, but have since shredded my membership. Now I am just a digital hoarder with many files in my external hard drives. Seriously though, if I asked you if you had a receipt from three years ago for the DVR you returned to the cable company would you laugh at me or could you produce it? I do ask people this question frequently, because if the answer is no they may have to cough up $400 to pay a collection to the cable company, because the cable company has sent a collection to the credit bureaus saying money is owed, and the culprit often times is a piece of equipment from the cable company that either was not returned, or was returned but not credited to their account. Save those receipts and final statements.

- Documentation of unpaid debts: save this to document the age of accounts, plan B to this is saving your credit report, it is preferable to save both.

- Tax paperwork such as receipts: if the IRS comes calling you will want to have this for at least the past seven years.

The bottom-line is this, you can shred all you want, just scan the irreplaceable documents first.

Have a mortgage or credit question you would like for me to cover on this blog? Shoot me an email so I can address it. If you want to apply for a mortgage in Arizona give me a call at 480-203-4641, the application process is easy, and it only takes 10 minutes for me to get the information to get you started on your way to home ownership.

Patrick Ritchie
Mortgage Finance Instructor
Ritchie School of Real Estate Finance
480-203-4641 Cell

© Copyright 2013 Patrick Ritchie All Rights Reserved