If there is one thing the media has made us aware of throughout the course of this morgage meltdown, its just how creative(and crazy) lenders were with the financing options.  As the credit from the banks tightened so did the lending options available for buyers.

While most of the exotic loans of the past are gone their are still many financing options available.  Below is a list of options and what it takes to qualify for the loan.

Conventional Loan: A conventional loan is a lender agreement that’s not guaranteed or insured by the federal government. At one point in our history, conventional loans were the only mortgage loans available and they were all made by local lenders such as banks, savings and loans, and credit unions. They kept and serviced these loans in their own portfolio until they were either paid in full or foreclosed on.

A Conventional loan typically requires a large down payment that may not be required when financing through the government, however it does offer more flexibility because you are working directly with a bank.

FHA: FHA loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration. The loan may be issued by federally qualified lenders.  FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI.

Required Documentation For FHA Loans

• A two year history of employment in the same field is required
• If you are a recent college graduate, your last two years of schooling can be used if you are currently working in your field of study
• Credit Scores normally need to be above 620 for Conventional financing-580 for FHA and VA looks at a case by case basis
• If no credit history exists-you may use cell phone bill, cable bill, previous rental history, etc. to establish a “pattern” of good credit payments
• Proper ID as defined by the Patriot Act (State Driver’s License or Birth Certificate along with a copy of your Social Security card required)
• Debt Ratios should be below 36/46

VA:  A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs. The VA loan allows veterans 100% financing without private mortgage insurance or 20% second mortgage. A VA funding fee of 0 to 3.3% of the loan amount is paid to the VA and is allowed to be financed. In a purchase, veterans may borrow up to 100% of the sales price or reasonable value of the home, whichever is less. Since there is no monthly PMI more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment.

The VA does not make home loans, they insure them.  We are VA approved and can help you with your VA loan request. Some VA benefits include:
- No downpayment is required in most cases
- Borrow up to 100% of purchase price
- Lower closing costs
- Mortgage is assumable
- No Private Mortgage Insurance (PMI)
- No penalties if you prepay the loan
- You may be eligible for waiver of VA funding fee
- VA support during temporary financial difficulties

GRH: A Guaranteed Rural Housing loan is a federal assistance mortgage loan in the United States insured by the RHS.

Some key features include:
-  No PMI. That’s right, no private mortgage insurance.  Like VA, this program has a Guaranteed fee that can be financed into the loan the same way VA loans have a Funding fee.
- 6% seller help/contribution is allowed
- No minimum contribution from your own funds.  FHA has a 3% requirement.  There are also no cash reserves required, as is the case with your typical conventional loan.
- This program only offers a fixed rate option for primary 1 unit residences.  Current maximum loan amount is $417,000.

requirements for loan:

• 1-unit primary residences, including single-family dwellings, condominiums, planned unit developments (PUDs) and eligible manufactured homes.
• Non-farm
• Leasehold and rehabilitated properties
• Property must meet the rural designation as defined by RHS

Good Neighbor Next Door Loan: Good Neighbor next door program is made available by HUD so law enforcement and Teachers may purchase a Hud home at half price.  If the police officer or Teacher uses fha financing for this purchase he/she will only need a downpayment of $100 and can finance the closing costs into the loan.

Interest Only and Adjustable Rate loans are still available but given the current market situation they are not used often.

Glenn Marlin, Realtor and member of The Reeves Team defined “Highest and Best” as the “final offer” a buyer will put in on a house.  “Typically, the bank will use a “Highest and Best” in place of responding to multiple offers.”

In speaking with Justin McHood from the Arizona Mortgage Team, he defines “Highest and Best” to mean the offer that has the most amount of money in it with the least amount of contingencies. For example: 100k offer in cash, no contingencies may be better than a $102,000 offer for buyer who is getting a USDA loan and has to sell their current home first.  “Highest” is easy to define — the most $$$.  “Best” is more qualitative — the owner has to put a dollar amount on the amount of contingencies the buyer is putting in the deal.”

So, what should you, as a potential home buyer, do when you put in an offer on a bank owned property and they respond with a request for “Highest and Best“?

1. Decide if you truly want the property.
2. If you don’t, now is the time to (have another) talk to with your REALTOR.
3. If you do, now is the time to decide how much you really want the home.
4. Submit your “Highest and Best” offer.
5. Be patient waiting for the bank to respond.

This may not be the case on every home, the homes this appears to be most relevant with is homes in move-in condition under $100,000. Buyers are in shock because they think they can swoop in with a low ball offer and the banks need to take it. Even though we may advise them against it, it usually takes two busted deals where the home gets multiple offers and sells above the asking price before the light finally comes on and they decide their agent may know what they are talking about.

One recent example was a 1984 Mesa 3 bedroom home that had just gone to foreclosure. The home was in great condition with granite counter tops, tile in the kitchen, halls and bathroom and newer stainless steel appliances. The home was move in ready and came on the market at $109,900. The fair market value for the home according to recent sold homes in the same neighborhood was closer to $118,000. This seems to be the case with many bank owned properties recently, get them on the market for a little below market and watch the investors swoop in and snatch it up quickly.

The buyers I was working with saw the home on the second day it was on the market. They wanted to make an offer and asked for my opinion. Instead of giving them an opinion of what I thought the home was worth I showed them comparables that placed the value of the home around $118K. They were excited and said great then let’s offer them full price. I informed them that I thought their chance of getting the home at that price were close to nil as investors would see the opportunity and bid this one up quickly. The decided they wanted to put in an offer for $112K.

I called the agent and told her the offer was coming. After being told the home already had three offers I asked if we were in the ballpark and she said if we added $10K we would be in the ballpark. The bank issued a highest and best and my clients stayed at $112K.

This is just one of many examples of what is happening right now in the local market. Buyers need to be educated if a move-in ready home is going for under what the current market price is, a low ball offer is not going to cut it anymore. If they want to make low ball offers they should be looking at houses that need work. If real estate agents give them the proper counsel from day one, even if the clients may not believe them at first, the real estate agents credibility will be boosted greatly when what they predicted would happen, happens.