VALUABLE ADVICE FOR 1st TIME HOME BUYERS

DEAR 1st TIME HOME BUYER, WE NEED TO TALK.....

Today I want you to look upon me, for the sake of some real, honest communication, as your kindly Uncle Charlo, who is the Family Go-To Guy for all things real estate and finance and who has your best family interest in mind. You know, the "blood is thicker than water", nepotism rules, slant on life. Let's dispense with the concept of "convincing" you of anything. I will not stroke your ego, deliver a compelling sales pitch, put on my red clown nose and dance for you.
None of that will happen in this blog. It will be just your Uncle Charlo talking, wanting to give his kin a leg up with 1st time wannabe home buying dreams. So have a seat in my cozy study, sip the nice, hot cup of Joe your aunt Leisa has set by your elbow, and listen up.

" So you want to buy a house, Dear, is that right?" I might ask.

You may respond with something like:
"Uncle Charlo, I hear it's a Buyer's Market and the interest rates are low, and my lease is up in a couple of months. It's time to buy my own dream home!"

If I were a pipe smoker, I probably would lean back and slowly light my pipe just about now. Alas -- I am not. So, in the spirit of getting right down to business I might say:

" You know I have made it a point to acquire a good amount of properties over the years in addition to selling and financing them for my clients, and if you listen up for a few minutes today, set your ego aside and if you get it, you will have a better chance to make your dream of owning your own home come true. Know that whatever I may say it is truth from the trenches and not meant to rain on your parade".

You think of Uncle Tobias and your older sister who are already in their own digs thanks to Uncle Charlo, and you might say enthusiastically (one could always hope):
" Talk to me Uncle Charlo, I'll do anything you say; just get me into a home of my own!"

Or you might think: "Pompous fool! Who does he think he is, trying to tell me what I should do. I know what I want and aim to get it -- with him or without him," and nod and smile weakly.

In a multi-layered civilization and sophisticated economy like ours, smart people pay good money to hire experts and use the information and their skills to get the results they desire. They know what they don't know and know where to find someone who has the vital information they need. They do not cut their own hair, do not complete their own tax returns, do not teach their own kids Algebra, do not grow their own vegetables and they do not try to buy and finance their first house without expert help. Of course we are not talking Homesteading now.

So let's assume you decide to pay attention to Uncle Charlo and track with him closely.

You might say:
"OK well, I want a home -- so where do I start?" You are a linear, practical thinker and not a philosopher delving into the idiosyncrasies of Western monetary systems -- a blog for another day.

Uncle Charlo leans forward, makes some serious eye contact and says:
"You start with yourself. Look at what you absolutely must have in a home and what you can afford to pay every month."

You say: "OK I'll bite. I want three bedrooms, two baths, a large yard and space for an office. I want a newer house, nothing to fix. It has to be within ten minutes to my job. Close to the college for my night classes. I can pay $800.00 a month for the mortgage, maybe $900.00."
You smile confidently. Does this sound like something you might be thinking?

Is that a sadistic twinkle in Uncle Charlo's merry eyes? He leans forward like a predatory bird and stabs at the air with a finger.
"What did I say? I said: "WHAT YOU ABSOLUTELY MUST HAVE!" Not what you ideally want to have. Why? You priced yourself right out of a house with that list. Do you really expect to get a three bedroom house in perfect shape for under $900.00 a month including everything? There are taxes, insurance, mortgage insurance, home owners dues! We'll do the math later, but now: GIVE ME THE ESSENTIALS OF WHAT YOU MUST HAVE. What is it that you absolutely cannot do without?"

Crestfallen, you feel he is stepping on your dreams, but you say:
"Well I guess I need two bedrooms, one for us and one for little Trevor, and maybe some extra space somewhere in case we decide to have another child. I do need a yard for Dexter. But if I am going to buy a house why not get what I really want?"

"Baby steps," says Uncle Charlie. You are trying to get your first house. You do not want to over-mount yourself financially, and being a 1st time buyer implies that THERE WILL BE OTHER HOUSES IN YOUR FUTURE!" Again he stabs the air with a finger. "This is just a beginning for you. Your first house!"
He scribbles my "must haves" on his yellow legal pad like a lawyer in the heat of a consult.
"Two bedrooms. One bath. A yard of some sort. Everything else is gravy."

"What about being close to work and school" I protest. "That's essential to me!"

Uncle is shaking his head in disgust. "Oh and you suppose we will find a good selection of homes in a postage sized square block around your work? How long do you drive to work now?"

" Twenty minutes". Again, that evil smile. Shatterer of dreams.

Then he softens and smiles all fatherly:
" The Prime Directive for you, as a First Time Home Buyer, is to get into a home, a home you can afford, a home you can qualify for, a home that has at least the basics of what you need and that is located somewhere accessible. It may not be the home of your dreams, it may not be perfect in every way -- are you perfect? It may not be close to everything you do."

"But it will be home of your own, your sanctuary and power base, it will belong to you, it will shelter your loved ones and you will make it yours and come to love it. You will eventually outgrow it -- ergo the term "starter home" , and it will be your stepping stone into real estate ownership. I will fall just short of telling you that any home you can get into is the right one for a first time buyer, but it is almost like that."

" Be flexible, open for possibilities and creative, let people help you if they offer it and do not say no to something that meets your basic needs and looks like it may become a deal for you easily. I am talking about sellers that offer to pay your closing costs, give you a repair credit, help with the down payment and so forth. these opportunities will make a potential home instantly more attractive."

" Be smart about your monthly limit on housing costs. It's not just the mortgage you will be paying. You need to add up everything and keep it within your budget. Look at town homes at lower prices with smaller yards but figure in the association dues. Look outside planned developments for zero home owners dues. Look at flood zones. No flood zone means no flood insurance cost. Look at the taxes. If an investor owned it before, your tax bill will be higher for the first year. Be aware of the costs and maximize your housing dollar."

You might say: "OK. So what can I get for a maximum of a $1,000.00 a month. I know I qualify for around $1,200.00 but I really just want to spend the same as what I am paying for rent now."

Uncle Charlo will nod approvingly and say: " Excellent, you got yourself qualified for a loan already. That must mean your credit scores are over 600, you have two years employment and income documents and you have some funds in your checking accounts for the purchase. What type of loan did you get qualified for?"

"FHA" you might say. FHA is a good program for 1st time home buyers. We offer it here.
" I have $5,000 cash in the bank and might have some more over the next couple of months."

" You need a deal where the seller pays your closing costs, but that is not that difficult to get right now." says Uncle Charlo. "Start looking at around $120,000 purchase price and check all the expenses. Look at anything within a 20 mile radius of your job which I suppose is your "ground zero". Explore. This is the data collection stage. You want choices. Fine tuning comes later."

We adjourn to Uncle Charlo's sunny dining room to snack on the Sunday brunch goodies.
More steaming hot coffee, OJ, muffins, pancakes, bacon and omelettes.

"Uncle Charlo, will you help me find my 1st house?"
Uncle Charlo nods and hands you a buttered muffin.

"Did I ever tell you about the first house I bought?" he says between bites.

But that is the story of another blog.

ANALYZING THE "MAKING HOME AFFORDABLE" INITATIVE

HOW THE BANKS ARE DEALING WITH THE
"MAKING HOME AFFORDABLE" PROGRAM with
additional commentary by USA Today.

Given the scarcity of good news overall for stressed out homeowners, let us carefully review this crumb thrown our way. Most of the Obama funds are being spent on propping up failed financial institutions and there's no "trickle-down" effect from those funds to the home owners, to be sure. Even this Making Home Affordable Program is based on the premise to financially incentivize, i.e. PAY $1,000.00 to everybody concerned to please participate in helping the embattled home owners keep their homes. The lender and the servicer get cold cash to do this, which means they get a huge chunk of the funds just to participate. For the performing loans over the five-year mark, small annual incentives actually go to the home owner as well. Not up front, though. They have to earn them with a perfect payment record.

In a nutshell, here's the deal:
1) Have a Fannie or Freddie loan under $729,750? (no sub-prime loans are eligible).
2) Are you a bona-fide owner-occupant? (no second homes or rental property).
3) Are you still CURRENT on your mortgage payments, or at worst 1 times 30 days late in the last 12 months? (There go half of the needy homeowners).
4) Then you are invited to call your loan servicer or a designated FNMA lender and apply for a refinance or loan modification before June 2010.

You will:
1) Have to prove your current PITI payments are OVER 31% of your income (that should be easy for the bulk of us).
2) Your home value has not bitten the dirt to a point where the new loan would be OVER 105% of your home's value; this includes the refinance costs. ( There go maybe a third of us).
3) Having to prove income and assets as if you were applying for a new fully documented loan may be difficult for the originally stated income applicants, small business owners and such.
(Since many homeowners are in need of help BECAUSE they have suffered a vanishment of income, this is a good one and bound to eliminate many in need).
4) You have to WAIT till your servicer gets around to your deal. (By then you may be late with a payment and ineligible).

This list of criteria effectively thins out the applicants to a trickle because:
1) This is a program made palatable for the LENDERS and not to save needy homeowners.
2) They only want you if your house makes value and you are still on top of your game, if a bit winded.
3) You will have to QUALIFY for the new loan fully, probably more stringently than for the one you now have. Those that lost serious home value and have had a real struggle financially are NOT part of this deal.
4) Basically it is helping those in the least amount of need. As is usual with bankers, you get to borrow money if you are able to demonstrate you are basically doing OK.
5) Any second mortgage holder must agree and remain in second place even if the balance goes up. (Good luck with that one!)


The Problems: Part of the problem is that in reality, many home owners have been late more than once in the last year and are struggling to make the payments. So those that actually are having problems are NOT ELIGIBLE. Home values have many home owners upside down beyond the 105% mark and those are the ones that really need the help and are most likely to lose their homes. Given the steep declines in values anyone with an original loan of 80% or above will probably not qualify, since the shrunken current value will be out of this tiny box.
The bank gets paid by the government to write a viable deal based on their Old School criteria, with possibly a lower rate for up to five years as a concession. No reduction of principal of course, leaving most home owners as upside down loan-to-value wise as before. Nit-picky stepped up rates over five years in case of a lower than market initial rate, or a balloon payment take more piranha nibbles out of these deals. In case you are coming out of an Option Arm into the accelerated rate term of your loan your rate will definitely go up, no question. And still they want you to be grateful.
If you DO manage to qualify, the papers you sign will put you ON PROBATION for three months and if you are not perfect in your payment record, you lose the deal. Imagine, if you were put on a trial period when you get a regular new mortgage - and after three months they decide to call the loan if you did not pay exactly like clockwork? You would lose your house and any equity in it. Well basically, this is what will happen here, too. They'll call the loan due.

The View From The Pit: President Obama tries to buy the financial institution's cooperation with more money that they deserve, but the image I get is him standing at the tall iron gates of Scrooge McDuck's Estate trying to advocate him into leniency towards his poor tenants who are losing their homes because of earlier sanctioned, impossible-to-meet loan terms and destructive economic forces that are as unchangeable for the homeowners as any force of nature. The harvest has been a bust, no grain was brought in. Yet anyone without grain will not get a chance to beg for their homes. "GAME OVER" for debtors.

I would not want to be in President Barack Obama's shoes.
Going to the Scrooge McDuck Estate trying to buy leniency for his harried constituents without a shotgun loaded for Bear is a thankless task. Why is the President trying to romance loan modifications out of the financial institutions, anyway? Give that poor man some knee pads. In this emergency, should he not have some additional powers? Privately I ask myself, is there not a better way to bail out our nation, than to just give billions to the financial institutions who mis-managed the devalued financial instruments to begin with? Why can't we have a democratic instead of a capitalist solution here? Why are these billions of dollars not being used to catch up or pay down the homeowners loans commensurate with the equity loss incurred and cut out the banking middleman? Or find some other way to help the home owner in the cross-hairs directly. Too simple, I guess. Bankers run the world, and banker will get paid. We are in for a rough ride, Citizens.
Too late for that now anyway, the bail-out funds have been given to the bankers.

Good luck, Home Owners, with running the qualification gauntlet and scraping together some of the crumbs of the MAKING HOMES AFFORDABLE program.

Many will go hungry because only the name is a mouthful.