No matter what you read, there is no exact formula for buying a home, just like there is no magic formula for raising children. What we can offer however is that buying a home can be fairly predictable and we can give some long tested suggestions to make your home buying process easier. But what you won’t find is our tips for how to raise a family that goes anywhere beyond – maybe making sure that your family has a home located in a great school district.

For starters finding the right home in April 2011 is going to be impacted by the economy. It is hard to get away from the economy. Gas prices are at all time highs and there is no sign of them coming down anytime soon. You may have to consider a specialty loan like a VA hybrid loan if you are an eligible VA loan applicant or an adjustable rate mortgage if you want to keep your payment lower. But this post isn’t about financing programs it is out some homegrown suggestions about picking the right home. So with this in mind we’ll launch into our home buying suggestions below:

Pick a location based on what is important to you. What is more important – being close to your family, being close to your job or being close to shopping centers and restaurants etc? For many people, the biggest expense outside of the mortgage payment is their transportation expense. With this as the case and with gas prices elevated you may want to consider either living closer to your job, or close to a mass transit access point such as a light rail station or a major bus route. There is no real right answer here as it is a personal preference.

Picking the right neighborhood. If you have a family picking a home based on the home being in a safe neighborhood and close to schools will likely be a priority to you. You may also want to consider where the home is in reference to parks and other amenities like: libraries, bike paths, and green belts.

Picking the right house. If living near a major street bothers you don’t buy the house because it fits your budget. What this means is that you need to be practical in your home search. But you have to draw the line in what you want and what you need and can’t live without.

Getting VA loans approved let alone any mortgage program is no walk in the park in 2010. Program guidelines are tight and it seems like everyday there is another story in the news about how hard it is to qualify for a mortgage. Even so, if you are trying to get a VA mortgage, logic and common sense can go a long way. Below are several areas where making sense can get your VA loan approved.

For starters, all VA loans are “manually” underwritten by an underwriter. What this means is that the primary decision maker on a VA mortgage loan approval is a human being versus an automated system. This is good news when comes to getting a VA mortgage approved because the underwriter has some discretion in approving a mortgage application if it makes sense to do so.

1. What about your credit report?

First, it is important to know what underwriters are looking for when it comes to their analysis of your financial affairs. How your finances look will tell an underwriter a lot about your ability to repay your mortgage. Do you have a lot of debt, or do you pay your bills off every money? What is your credit history – do you have a stellar credit history, or are you sloppy with making payments?

A missed payment on your credit report can spell disaster for getting a mortgage approved. However, with the VA loan approval process, you will have the chance to explain your situation to the underwriter. If you have to write a letter of explanation, make sure to spell out the facts and to indicate that you have since corrected the problem that lead to the missed payment. Showing responsibility for fixing the problem can make all the difference in getting an approval.

2. Your income is from 2 jobs or some other source?

Another factor of your financial situation that an underwriter will look closely at is in the case that you are applying for a mortgage using two or more jobs, or you are trying to use overtime/bonus pay to qualify. Typically, underwriters will only count overtime pay if you have been on the job for at least two years and that you have been getting the overtime pay consistantly the whole time on the job. This guideline typically applies for bonus pay too. You will need to be able to prove that you have historically gotten a bonus to have a shot at having that income count towards your mortgage application.

Under most situations, if you work two jobs, the second job will only be counted if you have been on the second job for at 2 years. You may be able to make the case that the second job should be counted if you have had it less than two years, but you held a second job before you got your current second job. The underwriters are looking for consistency. If you have been doing it and it looks like you will continue to do it, then you may have a good shot at having it count towards your loan approval.

If you fall into any of these situations, make sure you carefully discuss them with your loan officer. In most cases, how you present the information to the underwriter makes all the difference in the world in getting an out of the box situation approved.

Are you a grandparent with an estate set up to provide inheritances to your grand kids? If you so, please keep reading this post about how to fund their retirement using a Roth IRA and them buy a house with the same money.

Most kids I know of today are not going to benefit from working for a company that pays them a pension at the end of a long company career. One way to help your grand kids with their retirement would be to help them fund a Roth IRA every year. Technically, according to the IRS anyone can give a financial gift to anyone else without being taxed as long as the amount is less than $13,000 (this is for the tax year of 2010 – and the amount can change year to year).

With this being the case and you having your eye on their retirement, you may want to give them some of the estate money that you have set aside for them now on the condition that it goes directly into their Roth IRA. Concerning their Roth IRA and the gift tax rules set up by the IRA, you can give up to the full Roth IRA contribution limits (actual limits based on their age and annual income) for their Roth IRA as long as they are eligible to make their respective full annual contribution. To be eligible to make the full contribution your grand kid will have to have a job where they make at least $5,000 taxable income annually or $6,000 if they are age 50 or over.

If you start this process early enough, say when your grand kids turn 15 or 16 and get their job, you can help them sock away a pretty sizable nest egg without any taxes due on that nestegg by the time they are eligible to pull money out tax free at age 59 1/2. In the event that your grand kid wants to buy a home and meet certain Roth IRA requirements, they can tap into their Roth IRA as a first time home buyer for up to $10,000 tax and penalty free.

For the specifics of your situation, you should check with a financial planner or tax professional to find out your options for helping your grand kids with funding their Roth IRA.

If you get to the situation where your grand kid wants to buy a home, you can also help them out with a gift for their down payment. There are a few mortgage loans programs like FHA that will allow most if not all of the down payment and closing costs for buying a home come in the form of a gift.

Happy Home Buyers Just Got An FHA Home Mortgage

Many home buyers and home owners are choosing FHA mortgage loans as the way to finance their dream home. It was only a few years ago that FHA was not really an option for many people due to the number of other loan programs – but FHA has become almost the “loan of choice” for many people.

It used to be that FHA loans were just for first time home buyers or for people with less than perfect credit. Today, they have become more “mainstream”. One indication of this was pointed out by HUD Secretary Shaun Donovan in a recent speech to the National Association of Realtors where he pointed out that the average borrower credit score for an FHA loan went from 626 to 678 from Feb 2008 to March 2009. (See Donovan’s prepared speech on HUD.gov)

If you are not familiar with FHA home loans then the rest of this article provides some baseline information you can use to decide if this mortgage loan program is right for you.

FHA Mortgage Loan Highlights Include:

• No prepay penalty on and FHA home loan
• Monthly mortgage insurance is required on all FHA loans (aka PMI and UFMIP)
• Seller-paid closing costs are allowed with FHA loans
• 3.5% down payment required
• Gift funds from relative can be used for down payment and closing costs
• Government down payment assistance programs can be used for 3.5% down payment requirement

FHA Streamline Refinance

For those people who currently have an FHA loan, the FHA streamline refinance is the most popular way to refinance. The FHA streamline program allows you to refinance without having to get an appraisal, show pay stubs, bank statements or most other items that are necessary for most mortgage programs. If you have made your mortgage payment on time for the last 12 months, chances are that you will qualify for the FHA streamline program.

FHA 203k Streamline Program

The FHA 203k streamline loan is designed for people who want to buy a home that is in need of a few repairs.  When you finance a home with the FHA 203k Streamline program, money is set aside for repairs can be paid directly to the contractors. Up to $35,000 can be set aside. 203k streamline loans can be tricky, so be sure to work with a loan officer who has experience helping people finance their home with a FHA 203k streamline loan

FHA 203k Rehabilitation Loan Program

The FHA 203k Rehab Mortgage Program is a great to buy a home that needs more than just the repairs that are covered with the 203k Streamline program. Similar to the regular FHA home purchase mortgage, home buyers using this program are required to have a 3.5% down payment – but in the case of the 203k mortgage – the borrower is also required to put 3.5% of the cost estimate to rehab the house down as well.

The 203k rehab loan can be used for refinancing as well.

FHA 85% Cash Out Program

For people wondering how much of their equity they can access with an FHA loan, the anwer is 85% – as in FHA will allow you to get up to 85% of your home’s value in the form of cash – providing there is not a mortgage on the home already.

There are only two viable mortgage loan programs that require no down payment: the VA Mortgage and the USDA Rural Housing Development Mortgage. Sure some loan programs can be structured with down payment assistance where they can be passed off as no down payment loans, but these two are true $0 down mortgages.

These two programs are very flexible in what the allow for closing cost assistance, but they are not for everyone; here is why:

• The VA Mortgage Loan Program can only be used by qualified Veterans and unmarried spouses of a Veteran who died on active duty or as the result of a service-connected disability.
• The USDA Rural Housing Mortgage can only be used to purchase homes in designated rural areas anywhere in the US; they cannot be used to buy homes in a metropolitan area.

VA  Home Loans Explained In More Detail

• You can only get a VA mortgage from a lender who participates in the VA Mortgage Loan Program. Not all lenders offer this program. There are some quirks to it like how appraisals are ordered which keep some mortgage companies from participating in the program.
• To apply and get approved for a VA mortgage you must be able to prove your eligibility with a Certificate of Eligibility. Certificates of Eligibility can be gotten in several ways: 1. Take a copy of your DD-214 to your local VA office and apply for a certificate, 2. Complete a VA Form 26-1880 and mail it to the VA Loan Eligibility Center, PO Box 20729, Winston-Salem, NC  27120. Make sure you mail proof of your military service (a copy of your DD-214). If you need to overnight your request mail it to: VA Loan Eligibility Center, 251 N. Main Street, Winston-Salem, NC  27120. Again, make sure you send proof of your military service. 3. Request that your lender get your Certificate through the Web LGY system. If you are in the National Guard or have served in the National Guard, to be eligible for a VA loan you must have served at least 6 years.
• If you were discharged from the Armed Forces with a less than honorable discharge you will most likely not be eligible for a VA Loan.
• You can use your full Certificate of Eligibility for a VA loan if you have already had one if you have paid your original VA loan off in its entirety and you plan to live in the new property for which you intend to get the new VA mortgage. There are other cases about getting another VA mortgage around partial Certificates of Eligibility and Foreclosures. See the VA website for more information.
• 100% financing no money down mortgage
• Seller can contribute to closing costs to where the VA buyer does need any of their own money
• Up front funding must be paid or covered with the VA loan amount
• No PMI required
• Loan is assumable which means some else can take over your mortgage
• No prepayment Penalties
• Leniency afforded to Veteran who goes into default due to temporary financial difficulty.

USDA Rural Housing Mortgage In More Detail

• There is no down payment required – 100% financing
• No PMI required – no monthly mortgage insurance
• Not required to have cash reserves whereas many Fannie Mae programs require 2 months reserves
• You can have unlimited assets – many first time home buyer programs and down payment assistance programs are designed to disqualify you if you have too much money in the bank
• Anyone can apply – the USDA Rural Housing Mortgage is not just for first time home buyers
• 30 year fixed interest rate mortgages
• Property must be in a rural area: Check Property Rural Eligibility With USDA

Like we said, if you fit into either one of these home buying scenarios, these two loan programs are some of the best and most stable loan programs available in the US.

File Amended Tax Return To Get Tax Credit Early

IRS Home Buyer Tax credit filing options – a forgotten player in buying your first home in 2009, offering tax debt relief in the near future instead of waiting until next year’s tax season.

One of the big news items in May of 2009 has been the pseudo announcement by HUD Secretary Shaun Donovan of an upcoming tax credit bridge loan to be offered through FHA approved lenders as well as other approved entities. This bridge loan will allow qualifying first time home buyers to capitalize on their home purchase tax credit authorized by the Obama Housing Recovery and Stimulus Plan of 2009. Learn more about the Tax Credit Bridge Loan.

Even with the option of the tax credit short term bridge loan forthcoming for first time home buyers, some home buyers may find that they want some other options for how to claim their tax credit ahead of time. As it stands, the “normal” way to get the home purchase tax credit is to file for it with the 2009 tax return in 2010. This is a long time to wait. However, the IRS has published several filing options for those home buying tax payers who want to get their tax credit earlier.

The following filing option suggestions can be found on the IRS.gov website:

Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchase a home before Dec. 1 receive up to $8,000, or $4,000 for married individuals filing separately. People can claim the credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Tax Credit Filing Options

• File An Extension – Taxpayers who haven’t yet filed their 2008 returns but are buying a home soon can request a six-month extension to October 15.  This step would be faster than waiting until next year to claim it on the 2009 tax return.  Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit.

• File Now Amend Later – Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house in the next few months can file their return now and claim the credit later.  Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit.

• Amend the 2008 Tax Return – Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the home buyer tax credit on the 2008 return without waiting until next year to claim it on the 2009 return.

• Claim the credit in 2009 rather than 2008 – For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when they file the 2009 tax return rather than claiming it now on the 2008 tax return. This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

The best advice we can give is call you tax preparer and ask them your options for qualifying for the tax credit if buying your first home in 2009 and what are your best tax credit filing options. Good luck.

First Time Buyers Used State Tax Credit Loan

You may have heard that if you are a first time home buyer and plan to buy a home in 2009, you may be eligible for the $8000 First Time Home Buyer Tax Credit. While this is a great opportunity to get some extra cash just for buying your first home, you have to wait until you file your taxes in 2010 if you do buy a home in 2009 to get your tax credit money from the IRS.

So, if you still need help with your down payment, you cannot use this tax credit to buy a home now in 2009. You must come up with your down payment in some other way. Several options exist for this as it relates to your home purchase tax credit eligibility.

• First of all, you can apply for a short term tax credit bridge loan or a short term tax credit loan program from your state’s housing authority. Some states have initiated this program. Find out what states have a temporary short term tax credit bridge loan below.
• The second option is to seek out an FHA approved lender who is authorized by FHA to offer a short term bridge loan. This program is brand new from FHA. As of May 2009, the program details are still being rolled out and we will keep you updated as to the progress of this program.

State Housing Agency – State Housing Authority Short Term Tax Credit Loan Programs

In an effort to encourage first time home buyers to move forward with buying their first home and tax advantage of the $8000 housing tax credit program initiated by President Obama’s Economic Stimulus Plan, some states have initiated short term tax credit loan programs. These states have initiated this program:

• California – $10,000 New Home Tax Credit
• Colorado – CHFA JumpStart Tax Credit Program
• Idaho – IHFA Down Payment Assistance Tax Credit Advance 2nd Loan Program
  
• Missouri – MHDC Tax Credit Advance Loan Program
• New Jersey – New Jersey First Time Home Buyer Tax Credit Loan Program – Pre-Fund Stimulus Rebate
• New Mexico – MFA Tax Credit Loan Program
• Ohio – OHFA Homebuyer Tax Credit Advantage Program
• Pennsylvania – PHFA Tax Credit Advance Loan Program

To find out whether your state offers a short term tax credit bridge loan program see: State and Federal Home Purchase Short Term Tax Credit Programs

Get Down Payment Help

With all the talk about buying a home in 2009 many first time home buyers are looking at buying their first home. However, according to the National Association of Realtors®, first time home buyers typically have about 4% of the money they need to qualify for a mortgage. Most home purchases require at least 6-7% of the sales price of the home to qualify for the home loan.

With so many first time buyers short on the money they need to purchase a home we feel that it is important to spell out some ways to get some down payment help. You may be someone who needs help with coming up with money for your down payment for your first home purchase. If so keep reading.

Get Down Payment Help From The Following Sources

It does matter what type of mortgage loan program you decide to go with to buy your first home. Each loan program like: FHA home loans, Fannie Mae and Freddie Mac Conventional Mortgages, VA Loans, and USDA Rural Housing Mortgages all have slightly different guidelines for what is acceptable for where and how you get help with coming up with your down payment. Make sure you discuss this with your loan officer very carefully as you qualify for your mortgage. The following are general acceptable means for getting a down payment help.

• Funding from any Federal, State, or local municipality, or HUD approved housing counseling agency in the form of government down payment grants or other down payment assistance programs
• Get a gift from a family member or a family relative that covers 100% of your down payment and closing cost requirements. There is a particular procedure that you need to follow as you do not want to have your relative just give you the money and you plop it into your checking account. You need to track where the money comes from so work closely with your loan officer to make sure you do it according to guidelines.
• Borrow money from your 401K or IRA. Be careful here that you give yourself enough lead time to get your money if you are going to borrow it from these sources. Also, with using these sources you will have to pay the money back so there will be some impact on your debt to income ratio and your income qualification. Again, make sure this is carefully analyzed with your loan officer.
• HUD and FHA approved non profit housing agencies can provide gifts and grants.
• Money that you have in your bank account already is a great source for down payment.
• Sale of property you already own like a car or boat. Make sure to check in with your loan officer before you sell anything like this to raise money for your down payment if you are doing while trying to qualify. If you are not in a time crunch, you may want to sell your property and stick the money in your bank account ahead of time so that it is in your account for at least 60 days before you have an underwriter look at your financial documents. Large deposits must be documented and cars and boats can be tricky if you do not follow documenting this type of transaction by the book.
• You can also borrow money against property you already own such as a car or home. In this case you will have to make sure that the extra monthly payment you will have to the new loan will not prevent you from qualifying by throwing your debt to income ratios over 45%. Again, the idea is to work with your loan officer to make sure you are within guidelines if you are going to get money this way.
• You employer can give you the money in some sort of employer/employee contribution program. These programs are often tied to the company’s employee retention program where you as an employee contribute to an employee home buyer plan and the company gives you some type of matching fund. Check with your HR department about this kind of program.

VA and USDA Rural housing programs do not require a down payment for most loan scenarios so you will not have to worry about any down payment help for these programs.

Pre Approved Mortgage

If you are looking to buy a home you must go through several steps before you can start your home search. The first few steps are similar but different and require different actions from you. One is called: mortgage prequalification and the other is called mortgage preapproval.

Mortgage Prequalification

A mortgage prequalification is the result of an informal conversation that you have with a mortgage loan officer. During your mortgage prequalification interview you will be asked some general questions about your gross monthly income and your monthly debt. You will also get asked about your credit and credit scores. If you know your credit scores, tell them to your loan officer as you will be a little better prequalification. What you get with your mortgage prequalification is an approximate monthly payment you can afford based on the overview of the information you told the loan officer.

Mortgage Preapproval

A preapproved mortgage, or mortgage pre approval, is a more indepth analysis of your credit report, pay stubs, bank account statements, 401K and IRA statements, money market account statements, other credit documentation, and other pertinent information to your loan application. You will also be required to sign a loan application and various other documents from your mortgage company. All of your information is then presented to an underwriter for their review. The underwriter will underwrite your file and give you either an approval or disapproval.

At this point, since you do not have a property picked out, the approval you get will be subject to finding a home to purchase. Once you find a home to purchase and get a purchase offer accepted there will be more paperwork to submit to the underwriter like the appraisal and sales contract. With your loan approval being subject to finding a home, your loan officer can give you a pre-approval letter. You can take your preapproval letter to your real estate agent and in turn your real estate agent will give your preapproval letter to the listing agent and the home seller when you give them your purchase offer.

Most real estate agents will not work with you until you are pre approved. And most home sellers will not consider a purchase offer from someone who is not preapproved. The last thing a home owner wants to do is take their home off the market for someone who is not preapproved only to find out later that the potential buyer cannot get a mortgage. At least with a preapproval letter there is some level of confidence in the prospective home buyer to be able to get a mortgage.

How To Qualify For A Mortgage

Qualifying for a mortgage is not necessary as easy as it used to be, but in some senses we have gotten back to the basics. A few years ago, you could state your income and with good credit get a mortgage. Today (2009), you must have have proof of what you put into your loan application.

The Basic Information To Qualify For A Mortgage

Good Credit

• You must have credit scores above 620.  If not, you will need to get your credit scores above 620 to allow you to qualify for an FHA home loan. Minor credit problems are ok for an FHA mortgage, but you should show good credit history for the past 12 months. If you have had a problem within the past 12 months you better have a very good reason and be able to prove that you have cleaned up the problem and that it should not return.

Some Credit History

• At a minimum, you need to be able to prove some credit history. If not on your credit report you will need to be able to show some history with a cell phone, rent payments, utility company payments. Cancelled checks are a great way to prove credit history. You should have at least 3, preferably 4, credit accounts that you can show history with. Also, you want to shoot for having at least 6 months of history that you can prove.

Low Debt To Income Ratios

• You want to have some credit if at all possible like a credit card account or a car loan. But you do not want too much. Having some debt helps to prove that you can handle your credit responsibly. Too much debt can point to a problem with you not being able to handle your debt. Also, some credit will help to improve your credit scores as long as you are paying your bills on time. You will want to make sure that your debt to income ratio is under 45%.

Employed With A Paycheck

• To qualify for a mortgage you will need a source of income. For most of us, that means having a job. Unless you are self-employed you will need to have a job that pays you with a pay stub and a W-2. Under the table jobs are not acceptable. You will need at least 30 days worth of pay stubs with year to date totals and your most recent W-2. You may also be asked to provide your last three years worth of tax returns and W-2’s as many programs now ask for this much income documentation.

Self-Employed

• If you work for yourself, the days of the stated income or no income loans are over. You will need to prove income for yourself. This means tax returns where you show income – not everything written off. Do not let your accountant get crazy with your income so that you show very little if you want to qualify for a mortgage. Also, you will need to be self-employed for at least 2 years before you can get a mortgage. Also, be prepared to submit both your personal and your business tax returns for at least the last 2 years if not 3.  You will also be asked to supply a current year profit and loss statement and possibly a personal financial statement as well as bank statements. Bottom line here – be prepared to show everything you have to prove that you are making money.

Money In The Bank

• Just about every mortgage requires some form of down payment and closing costs. Unless you are a Vet or are applying for a rural housing loan you better have some cash in the bank. FHA requires that you have 3.5% of the purchase price and some conventional mortgages require 3.0%-5.0%. Money can come from several places like a gift from a relative, or a down payment assistance program, or a short term tax credit bridge loan from either your approved FHA lender or a state sponsored program.