How to read a HUD

How to Read A HUD

Introduction

In reviewing the HUD-1 or Settlement Statement it is important to realize what exactly you are reading and what each part means in the grand scheme of things.  The HUD-1 offers both the buyer and seller an exact accounting of all of the costs and fees associated with the purchase and transfer of property.

While the type of software that the title or closing company uses can dictate the exact layout of the HUD-1 there are some similarities that the parties can count on.  On the first page of the HUD-1 the parties will find a summary of both parties transactions.  This will include the following details:  the contract sales price for the purchase of the property; the earnest money or down payment paid by the buyer; the prorated property taxes for both of the parties; the closing costs or settlement charges that both parties are paying; the principal amount of the buyer’s loan if there is financing associated with the property; and any other miscellaneous fees and costs that are associated with the property.

The HUD Itself

The first page is perhaps the most important page because it will determine the bottom line for both parties.  It will show at the bottom of the page what the buyer has to pay out of pocket for the purchase and how much the seller will receive for the sale of the property at closing.

The second page will contain a breakdown of the settlement charges or the closing costs for both parties.  Typically, the seller will be paying the commissions associated with the real estate agents and this will be all of the settlement charges the seller owes.  The buyer will have fees associated with his or her loan, which will typically include a loan origination charge, an appraisal fee, a credit report, and other miscellaneous services and costs required by his or her lender or the type of loan that he or she is obtaining.  The buyer will also have interest computed from the date of closing until the first of the next month on the loan.  Additionally, there will be an initial escrow deposit required by the lender for property taxes and homeowner’s insurance.  Finally, there will be the costs for the title company completing the closing and costs associated with title insurance, deed recording, and transfer taxes.

The third page of the HUD-1 is devoted to the buyer and reflects details about financing if there is a loan associated with the closing.  It will contain a comparison between the good faith estimate and the actual key numbers of the HUD-1.  This is to remind the buyer that the good faith estimate has expired and the parties, nor the loan service provider are no longer bound by those numbers.

Following that, the buyer will find additional key details regarding their loan, to include:  the principal loan amount; the initial interest rate; whether the interest rate is a fixed rate or a variable rate; the length of the loan; the monthly payment for principal and interest; the escrow payment every month; and the total payment for the property every month moving forward.  The follow on pages will just contain a further breakdown of the above-mentioned fees and costs.

In Conclusion

It is important for both parties to fully understand the HUD-1 prior to closing.  Both parties real estate agents should assist the parties in reviewing the HUD-1 and answering any questions that are associated with it.  Furthermore, at closing the closing agent or the attorney should go through the HUD-1 in detail to insure the parties have a comfortable understanding of all of the numbers and what they mean.

Special Programs for Homebuyers

Many federal, state and local agencies administer programs to assist people who need help buying a home. Some of these are loan programs; others provide assistance with down payments or with building a home!

Federal Housing Administration (FHA) mortgage loans

These mortgages, administered by the U.S. Department of Housing and Urban Development (HUD), are government-insured loans that offer very low down payments, which may be borrowed from relatives. Rates are often lower, and qualifying is easier because credit is not as large a factor. These loans are often assumable, meaning you can take them over from the previous owners or allow a buyer to take it over from you. Refinancing is easier, and there are other products and services available. There is, however, a cap on how much can be borrowed. Processing may take longer and appraisal guidelines may be strict; the house must be worth the selling price. FHA mortgages are not restricted to first-time borrowers.

U.S. Department of Veterans Affairs (VA) Home Loan Guaranty Service

VA mortgages are government-guaranteed loans available to veterans of the armed services, those currently on active duty or in the reserves, and widows or widowers of veterans. Like FHA loans, VA loans have guidelines that allow more people to qualify. In addition, some VA loans require no downpayment at all. There are limits on the size of VA loans, but usually they are large enough to cover the purchase of moderately priced homes across the country. VA-guaranteed home loans are made by private lenders. The guaranty means that VA will protect the lender against loss if the veteran or a later owner fails to repay the loan.

U.S. Department of Agriculture Rural Development Housing & Community Facilities program

This program provides a variety of financing for low- and very-low income buyers in rural areas. If you are a farmer or live in a rural area, ask mortgage lenders if you may qualify. The Rural Housing Service (RHS) provides a number of homeownership opportunities to rural Americans, as well as programs for home renovation and repair. RHS also makes financing available to elderly, disabled, or low-income rural residents of multi-unit housing buildings to ensure they are able to make rent payments. Direct loan and grant income limits are listed by state on the program's Web site.

Reverse mortgages (Home Equity Conversion Mortgages)

Designed specifically for older borrowers who have substantial equity in their homes, this type of mortgage can be used to increase the monthly income of retired or elderly borrowers. It enables them to use the equity in their home without selling or moving. The owner receives a monthly payment that slowly reduces the equity. However, the loan must be repaid if the borrower sells, moves, or dies, which may reduce the value of equity available to heirs.

American Dream Downpayment Assistance Initiative (ADDI)

The American Dream Downpayment Assistance Initiative authorizes up to $200 million annually around the country for downpayment assistance. To be eligible for ADDI assistance, individuals must be first-time home buyers interested in purchasing single family housing. A first-time home buyer is defined as an individual and his or her spouse who have not owned a home during the three-year period prior to the purchase of a home with ADDI assistance. ADDI funds may be used to purchase one- to four- family housing, condominium unit, cooperative unit, or manufactured housing. Individuals who qualify for ADDI assistance must have incomes not exceeding 80 percent of area median income. ADDI provides funds to all states and to local participating jurisdictions that have a population of at least 150,000.

Zero Downpayment Act

Zero Downpayment Act eliminates the downpayment requirement for families and individuals who buy homes with Federal Housing Authority (FHA) insured mortgages. The Zero Downpayment Act offers opportunities for first-time home buyers who do not hold enough savings for downpayments, who meet FHA’s underwriting requirements, and who can easily afford monthly mortgage payments. The zero down plan is different from assistance programs like the American Dream Downpayment Act. Instead of granting a lump-sum award to qualified homeowners, FHA charges a modestly higher insurance premium to lenders on its zero down loans. Contact HUD for more information.

Energy Efficient Mortgage (EEM) program

FHA's Energy Efficient Mortgage program helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost of adding energy efficiency features to new or existing housing as part of their FHA-insured home purchase or refinancing mortgage. FHA EEMs provide mortgage insurance for a person to purchase or refinance a principal residence and incorporate the cost of energy efficient improvements into the mortgage. The borrower does not have to qualify for the additional money and does not make a downpayment on it. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, or savings and loan association, and the mortgage is insured by HUD.

Teacher Next Door program

HUD designed this program to encourage teachers to buy homes in low- to moderate-income areas. Those who work full time for a public school, private school, or federal, state, county or city educational agency as a state-certified, classroom teacher or administrator in grades K-12 may qualify. You must be in good standing with your employer.

Your employer must certify that you are a full-time teacher or school administrator. You don't have to be a first-time home buyer to participate. However, you cannot own any other home at the time you close on your home. You must agree to live in the HUD home as your only residence for three years after you move into it. www.fhainfo.com/teachernextdoor.htm

HUD’s HOME program

HOME provides grants to states and localities. Communities use this money, often working with local nonprofit groups, to fund a wide range of activities that build, buy, and/or rehabilitate affordable housing for rent or homeownership or to provide direct rental assistance to low-income people. The eligibility of households for HOME assistance varies. For rental housing and rental assistance, at least 90 percent of benefiting families must have incomes that are no more than 60 percent of the HUD-adjusted median family income for the area. HOME income limits are published each year by HUD. For more information:www.hud.gov/offices/cpd/affordablehousing/programs/home/index.cfm

Home Prices Are Rising in Chattanooga

The title says it all. According to a recent articles in the Chattanooga Times Free Press, home prices in Chattanooga rose by roughly 6 percent in the last year. Though our home prices are still a third the national average, this could potentially be distressing for younger or lower-income families and individuals seeking to purchase a home in the near future. Here's a chart displaying median prices for homes in other major regional cities:

But what might really prove more distressing in the long run is a rise in interest rates, brought on both by the financial recovery and actions taken by the Federal Reservce. Quoting from the Times Free Press article:

Home buyers also will likely face higher interest rates over the next couple of years as the Federal Reserve begins to tighten its monetary policies by ending its bond purchase program at the end of 2014. Yun predicts that mortgage rates, which now average about 4.1 percent, will rise to about 6.15 percent by 2016 as inflation and the economy heat up and the Federal Reserve ends much of its stimulative monetary policy.

To read the rest of the Times Free Press article, click here. 

Home Sales to Pick Up in Second Half of 2014, Despite a Dearth of First-Timers

Home sales should pick up in the back half of 2014, but first-time home buyers are still underrepresented, the National Association of Realtors reported.
In May, first-time buyers were responsible for 27 percent of existing-home sales. That includes a relative “surge” of first-timers who bought in May so they could take advantage of an expiring tax credit program. 

“The flourishing stock market the last few years has propelled sales in the higher price brackets, while sales for homes under $250,000 are 10 percent behind last year’s pace,” said Lawrence Yun, the association’s chief economist. 

 “Meanwhile, apartment rents are expected to rise 8 percent cumulatively over the next two years because of tight availability. Solid income growth and a slight easing in underwriting standards are needed to encourage first-time buyer participation, especially as renting becomes less affordable.”
Overall, pending home sales were up “sharply” in May, and the effect was seen in every region. 

 “Sales should exceed an annual pace of 5 million homes in some of the upcoming months behind favorable mortgage rates, more inventory and improved job creation,” Yun said. “However, second-half sales growth won’t be enough to compensate for the sluggish first quarter and will likely fall below last year’s total.” 

Specifically, Yun is forecasting a 2.8 decrease in sales of existing homes. The median price, however, will grow by 5 to 6 percent.

This article was originally published on Community Investor. The Grace Frank Group claims no ownership of this information.

Brave New World: Real Estate Apps

From a recent Washington Post article about real estate apps:

The old-fashioned method of driving around to check out homes and neighborhoods hasn’t entirely disappeared, but it’s definitely received a 21st-century makeover with the introduction of mobile apps. 

A variety of apps are available to help potential buyers look for a home, check out the neighborhood and local schools and connect with a Realtor from their mobile devices. In addition, home buyers and homeowners who intend to upgrade their dwellings can rely on apps to help their renovation plans.

"Nothing online about raccoons or serial killers. This one might be it."

“What I like about this app is that it gives you all the nearby rentals [and nearby for-sale properties] based on your location,” says Sheena Price, 29, who uses an app created by Avery-Hess realty. Price and her husband, Frank, have been searching for properties to either rent or buy. 

“Once you click on nearby sales, you get a list of properties, photos and it tells you how much they are,” Price adds. 

According to “The Digital House Hunt: Consumer and Market Trends in Real Estate,” a 2013 study by the National Association of Realtors and Google, 89 percent of home buyers use a mobile search engine and 68 percent use a mobile app at the onset and throughout their home search. 

Click here to read the rest of the article, and check out the list of apps that they provide that have proved particularly helpful for prospective buyers and investors.

How To Buy A Rental Property

Investing in a rental property seems like one of the easiest (in theory) ways to make money in the real estate market. But as with anything in real estate, the act of actually purchasing the property can seem daunting, especially to first-time buyers or people unfamiliar with their local market. How do you select the right property, what steps do

you need to take, what do you need to do to get approved, etc.

Luckily, as with most topics, there's no shortage of help out there for beginners looking to break into a certain field or topic. Brandon Turner, a resident blogger for the online Real Estate magazine Bigger Pockets, lays out some of the steps in a simple, easy to read list. This list covers every step of the process at least in part, from getting pre-approved to actually selecting and closing on a property.

Click here to read the full list. And since now seems as good a time as ever for a personal plug, did you know that the Grace Frank Group has its own multifamily site? Click here to visit and view our list of multifamily properties, and feel free to contact us with any questions!

FREE Land from the City?

Back in December, the Chattanooga Times Free Press published an article discussing a proposal that Chattanooga Mayor Andy Berke had put forward to give away city-owned land in order to speed up the development of quality housing for lower-income families.

Though the article is a few months old, the initiative was first put forward by Berke last summer. The goal, as described by Times Free Press writer Joy Lukachick, is:

"...to have 30 low-income families in houses by the end of the fiscal year on June 30. That gives officials a little more than six months to finish vetting the properties and find developers to build the houses."

With over 1000 people in Chattanooga on the waitlist for federal housing vouchers, this approach has attracted both praise and criticism alike. Most of the criticism has been leveled at the potential cost and the forced breakup of communities to meet the demands of the initiative.

Click here to read the full article. Again, this article was initially published in the Chattanooga Times Free Press.

Rent or Buy: The Cost is Going Up

To rent or buy? The eternal question in real estate, particularly in younger years, when renting seems like the more viable option as opposed to buying while you're less financially stable.

But don't freak out; we've got information. The article below comes from Melinda Duncan, a Re/Max agent based in Kentucky (check out her website). The bad news? Costs are likely going up no matter what. The good news? It doesn't have to break the bank.

Whether you continue to rent or decide to buy a home, according to recent Zillow 2014 housing projections, the cost is going up. Zillow projects home prices to increase nationally by 3%, mortgages to rise to 5% interest rate by the end of the year and rents to go up by 2.5% on average.

If it will cost a person more whether they rent or buy, the conclusion can be made that one way or the other, they will pay for the house they occupy. The question will be whether they buy it for themselves or their landlord? Will they benefit from the equity build-up and the appreciation? 

The following analysis looks at a $200,000 home that can be purchased with a 30 year FHA mortgage at 4.3%. The assumption uses 3% appreciation and tenant currently paying $1,750 a month in rent. 

The house payment, principal, interest, taxes and insurance would be about $1,609 a month. However, once you consider the benefits of the principal reduction each month, the appreciation and the tax savings and the increased cost of maintenance, the net cost of housing is closer to $630 per month. 

Even if you ignored the tax savings, the net cost of housing would only be $919.06 per month. The tenant would pay considerably more to rent than to own the home. Over time, the decision to buy a home could result in a considerable financial asset that the tenant will not benefit from. 

To estimate your cost of housing, use the Rent vs. Own.