Did You Know? Grace Period on Your Monthly Mortgage Payment Isn’t Free

Most homeowners with mortgages know that their mortgage payment isn’t “late” until, say, the 15th of each month, but what they may not realize is that they will owe interest for the days between the first of the month and when the lender receives the payment

It’s easy to think those days are free because your mortgage payment is the same whether you pay on the first of the month or the 15th of the month.  However, the lender’s computer keeps track of your payment dates, and you will find — if you keep the same mortgage until it’s paid off — that your final payment is bigger because of all that extra unpaid interest.

Let’s say that the principal component of this month’s payment is $800 and you pay on the 10th of the month. You owe 10 days’ interest on that $800 which will accumulate over time as you keep paying on the 10th of the month.  At payoff time, you will have to pay that accumulated interest expense.

Published Aug. 4, 2016, in the YourHub section of the Denver Post and in four Jefferson County weekly newspapers.

 

Yes, You CAN Buy a Home With Less Than a 20% Down Payment!

[Published on Jan. 5, 2012, in the Denver Post]

One of the most prevalent misconceptions among home buyers is that you need a 20% down payment to get a mortgage. In fact, the majority of loans being written today are FHA-insured loans requiring only 3.5% down payment.  The VA still offers 100% financing to qualified veterans, and one can buy a home with only $1,000 down through the Colorado Housing and Finance Authority.

Another misconception is that mortgages are less available. That, however, is only true if the borrower has a credit score under 620.  That’s the big change from the “bad old days” of toxic loans — banks now make you prove that you can pay back the loan. Underwriters require so much documentation to prove you’re qualified that I’m glad I’m a Realtor, not a mortgage broker!

The FHA loan limit in our area is currently $406,250. You can buy a home for more than that amount, but that’s all the FHA will allow you to borrow.  Although FHA loans are most typically used by the middle or lower middle income buyer, there is no income limitation to qualify for an FHA loan.  FHA loans also carry no pre-payment penalties, and, best of all, they are assumable by qualified buyers.

The assumability of FHA loans is especially valuable now that a buyer can obtain an FHA loan for about 3.75%, which is below the rate on a non-assumable conventional loan.  When you sell your home 5, 10, or 20 years from now when rates are much higher, wouldn’t it be great to advertise that you have an “assumable 3.75% loan”?

FHA also offers 3-, 5-, 7- and 10-year Adjustable Rate Mortgages. ARMs are currently being offered at rates under 3%, which is incredible!  As someone who tends to move every five years or so, I’d jump at a 5-year ARM. Even with a maximum adjustment in years 6 and 7, it would take at least that long for a buyer to pay more than he would over the same period on a 30-year fixed-rate loan.

If everyone knew that they could buy a home with as little as $1,000 down payment — or, at worst, 3.5% — we would see a lot more buyers than we do in the market taking advantage of these incredibly low interest rates.  And, indeed, there are already enough buyers in the market now to deem it “hot.”  My end-of-year index [posted on this blog on Jan. 1st] shows that 26.8% of Front Range MLS listings are under contract. In Jeffco (minus foothills areas), 32.3% of the inventory is under contract.  In Denver it is 34.2% and in Aurora it’s 48.9%.  Now, that is what I call a hot market!

Condo association must take action so that members can sell their units!

[from my Dec. 22nd column published in the Denver Post]

FHA loans fill an important gap in the financing of low-end homes, especially condos, because FHA requires only a 3.5% down payment.  And here in Colorado, the Colorado Housing Finance Authority (CHFA) will loan first-time home buyers all but $1,000 of that 3.5%. But first the condo project must meet FHA approval on a few key factors.

First, if fewer than half the residents are owner occupants, forget about using an FHA — or even a conventional — loan.

Secondly, FHA and Fannie Mae look at the financial strength of the condo association.  If more than 15% of units are behind on their monthly dues, forget about getting a loan on any unit in that complex. 

Third, no single investor can own more than 10% of the units.  And there are other criteria that must be met by the condo complex.

Until February of last year, it was possible to get a “spot approval” to sell a condo by satisfying these and other criteria for the loan underwriter.  However, since February 2010, the condo association itself must obtain certification from the FHA before any unit in that complex can get an FHA loan, even if those criteria would be satisfied.  It takes time and it takes money for the association to get that approval, and many — indeed, most — condo associations have been lax is obtaining that certification.  Moreover, certifications expire and the association must re-apply.  Many have not.

For example, in Lakewood’s ZIP 80228 (the Green Mountain area), there were 18 approved condo associations a couple years ago, and now there are only six.  In ZIP 80229, ten out of 12 are no longer certified — and not because they wouldn’t qualify if they applied.

Now that FHA loans are the only way that a significant percentage of home buyers can finance a home, and since condos are the most affordable way for most buyers to become homeowners, this failure by condo associations to obtain and renew their FHA certifications has potentially disastrous consequences for all current condo owners.  If units can only be sold to cash buyers or with private financing, the values of the units are bound to fall.  If you are a condo owner, pressure your association to get and remain certified with the FHA — assuming it qualifies.

Moreover, even if your condo association maintains its FHA certification, if other complexes don’t, they will affect your complex to the extent that they produce lower comps for your units.

I thank Norm Lewis of Peoples Mortgage (303-910-1629) for educating me on this topic.

Your are encouraged to add your own insights to this issue below!