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Archive for the 'Financing' Category
Let Fannie Mae Buy You A Refrigerator
February 11th, 2010 categories: Financing
Last week Fannie Mae announced it is offering a 3.5 percent incentive for buyers who purchase and close on a property they own between January 28 and April 30, 2010.
Fannie Mae owned properties can be found both on the MLS and at Homepath.com.
Buyers Homepath properties may receive up to 3.5 percent of the final sales price for:
- Closing costs
- The purchase of new Whirlpool appliances by Fannie Mae or
- A mix of the two at the buyer’s discretion, up to the maximum of 3.5 percent
In order to be eligible for the incentive, offers must be accepted after January 28 and close before May 1, 2010. Investors aren’t eligible for the bonus.
| Discussion: 1 Comment »
HUD Flips Minneapolis Duplex Rules
January 21st, 2010 categories: Financing
Either someone at HUD is really smart, or they’re reading my blog.
I’m inclined to think it’s the former.
Last week I explained many rehabbers I work with were scrambling to find houses and duplexes to buy before the end of the month so once repairs were completed, they would have owned it the required 90 days in order to be able to resell it to an FHA buyer before the tax credit deadline.
This same waiting period often prohibited FHA insured buyers from acquiring some bank and HUD owned properties.
On Friday, HUD Secretary Shaun Donovan announced a temporary policy lifting the 90 day waiting period.
The waiver goes into effect on February 1, 2010, and is effective for one year; unless, of course, HUD changes its mind.
Sales must be “arms-length”, with no shared interest between the buyer and seller or anyone else participating in the sale. When the resale price of the duplex is more than 20 percent above what it cost the seller to acquire it, certain conditions have to be met for the waiver to apply.
This should help keep the market supplied with affordable first time home buyer properties in good condition.
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Get A Loan At Closing To Repair That Foreclosed Minneapolis Duplex
January 15th, 2010 categories: Financing
One of the challenges many first time home owners face when buying a foreclosed Minneapolis duplex is the cost of repairing and deferred maintenance or damage.
After all, when you spend your savings on the down payment and have to wait several months to get your $8000 first time home buyer tax credit check, how can you afford to make the place livable?
It’s important to remember for the last several years FHA has offered a loan called a 203k construction loan. Basically, you can get a loan for up to 110 percent of the rehabbed value of the property, with the money left after purchase being allocated for construction and repairs.
The 203k is one loan, as opposed to a first and second mortgage.
There are stipulations to these mortgages, including that the improvements must be made by licensed contractors and the bank pays those vendors directly.
Historically, these loans have typically been more expensive than a straight FHA loan: as much as 1 – 1.5 percent higher.
However, a loan officer who specializes in 203ks told me yesterday in the last several months, interest rates on them have been just .25-.85 percent higher.
That seems like a pretty affordable way to finance the repairs and updates so many of these distressed properties require.
| Discussion: 1 Comment »
Minneapolis Duplex Buyers Can Now Put Less Down
August 14th, 2009 categories: Financing
There was a quiet bit of good news for Minneapolis duplex buyers in the mortgage market this week.
PHH Home Loans and two of its mortgage insurance companies removed the “declining market” label from the Twin Cities.
For the last couple of years, lenders deemed a metropolitan area a “declining market” if the Federal Housing Finance Agency Home Price Index saw a slide in value of, basically, one percent or more. In other words, if the average home price drops, it’s a declining market.
Understandably, banks are reluctant to lend money on a duplex that’s going to be worth less money one year from now. As a result, if a property is in one of these markets, an appraiser may flag it as such. This has, has often resulted in owner occupant buyers who intended to use conventional financing being required to bring more money to closing table for a down payment.
This often meant a 20 percent down payment on the duplex they wanted to live in. Needless to say, this additional cash requirement was a deal breaker for many.
Big deal, right? Just use an FHA loan.
Well, remember those FHA red flags?
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FHA Wins Minneapolis Duplex Financing Wars Again
July 16th, 2009 categories: Financing
It sounds presposterous, but a client actually had a computer glitch significantly delay his purchase of a duplex the other day.
As he was using FHA financing, the glitch involved a software problem in the computer system of the federal government. Basically, he had written an offer earlier in the year on a different property, which we were unable to successfully close on. And somehow, the “case number” assigned to the loan he never got remained in the system.
When he went to get a loan for a different property, the government’s software prevented it. After all, you can only have one FHA loan at a time. And the computer said he was applying for a second one. The computer is always right (sarcasm intended).
So I went about looking for alternatives. After all, there are no limits to the number of conventional loans a buyer can have at one time. And I hoped there was a loan product out there with perhaps a down payment of just a little more than FHA’s mandatory 3.5 percent. Perhaps we could find him a conventional loan that required just 5 percent down.
And then I learned something.
While conventional loans on single family homes presently require the buyer to have a minimum of 10 percent down, duplexes are another matter entirely.
We all know investors are required to put 20 – 25 percent down in today’s market. So it should be something less if you’re buying the duplex to live in, right?
Nope. Owner occupants who use conventional financing for their multi-family properties are required to have a 20 percent down payment.
Sadly for my client, it looks like FHA is still the best game in town.
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Do You Pay More In Interest When You Buy A Duplex?
July 6th, 2009 categories: Financing
One of the most common questions I get is, “What’s the interest rate on a duplex?”
And as I do with so many of my answers, I always begin with, “It depends”.
If you plan to live in the duplex, your interest rate will be exactly the same as it would be if you were buying a single family home to live in.
However, if you’re purchasing the property strictly as an investment, your interest rate will be anywhere from one to three percent higher.
If, for example, the going rate is five percent on single family homes, expect to pay anywhere from six to nine percent interest on an investment property.
Of course, the interest rate each person qualifies for is determined by a number of factors, not the least of which is credit scores.
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How Much Should You Put Down On A Minneapolis Duplex Contract for Deed?
June 25th, 2009 categories: Financing
With today’s tightened lending standards, many investors are having a difficult time finding financing. As a result, the contract for deed has once again emerged as a viable option.
I have had two buyers ask me this week alone to find them property where the seller is willing to do the financing.
Believe it or not, there are properties on the MLS right now where this is an option. Many sellers, for whatever reason, simply need to no longer have the managerial responsibilities of a property.
Of course, the seller also wants to make money on his duplex.
While most forms of seller financing carry a higher than market interest rate, they often also require less of a down payment. At the moment, most banks are requiring a down payment of 25 percent on a non owner-occupied investment property. Private sellers willing to carry financing will often ask for less.
How much less?
Let’s look at it from the seller’s perspective.
If his duplex is actively on the MLS, he has signed a contract with a real estate broker. In the event the property sells as a result of his Realtor’s efforts, he is legally bound to pay a commission based on a percentage of the sales price.
So, if he’s bound to pay six or seven percent in commission on say a $200,000 property, that’s $12,000-$14,000.
In that case, is he going to be ok with a buyer putting $5000 down?
Probably not. If he did, he would have to go into his own pocket to pay not only the rest of the commission, but closing fees as well.
What’s the likelihood of finding a seller willing to do this?
You tell me.
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Translation: How To Get The $8000 Tax Credit For Closing Costs
June 5th, 2009 categories: Financing
Every time HUD makes a change in the first time home buyer tax credit, they announce it by issuing something called a mortgagee letter. These edicts announce the framework of whatever change may be in order.
On May 29, HUD’s mortgagee letter announced the $8000 first time home buyer tax credit may be used for closing costs or to add to the minimum down payment required for an FHA loan of 3.5 percent. And it explained how to get it.
That is if you can translate the mumbo jumbo.
No?
Let me try.
There are two ways to get the $8000 tax credit applied toward closing costs, prepaids, discount points or, yes, even the down payment.
First, you can get a tax credit advance from an approved non-profit agency. These agencies, which may be government or non-profit organizations, must be approved for the program by the federal government and may, in fact, allow you to use the tax credit as part of the 3.5 percent down payment.
There are currently 10 states where such programs exist: Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania and Tennessee.
While we don’t have such a program in Minnesota, I imagine “getting” the credit as a down payment will involve applying at one of the agencies providing this service prior to even shopping for a duplex.
The buyer will then receive the credit at closing. Repayment will be secured by the agency placing a lien on the buyer’s new duplex. This lien, or loan, may be “soft” or require monthly payments, which can’t start for at least 36 months. The amount of these future payments will be factored along with the first mortgage, in the buyer’s qualifying ratios.
More likely for most first time Minneapolis duplex buyers is a second scenario.
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How A Contract for Deed Can Cause A Bank to Foreclose on Your Minneapolis Duplex
May 29th, 2009 categories: Financing, Selling A Duplex
With the tightening credit standards and increased down payment requirements in today’s mortgage industry, many sellers have become willing to provide financing for prospective buyers via a contract for deed.
In a contract for deed, which is also known as a “land contract”, the seller acts as the bank for the buyer.
All the terms of the “loan”, including interest rate, monthly payments, amortization schedule, length and down payment requirements are negotiable, just as all of the terms of the purchase of the duplex itself are.
While a contract for deed certainly avails a seller of more prospective buyers, it’s crucial that prior to offering it, he know whether or not his mortgage has what’s known as a “due-on-sale clause”, which may also be called an acceleration clause.
When contained in a promissory note, this clause stipulates that the original lender, or bank, may require the entire balance of a loan be paid in full upon the sale or transfer of any interest in the property used to secure the note. (Please know there are some exceptions between spouses, with estates, etc.)
These clauses came into existance in the 1970’s when double-digit interest rates made new loans unattractive. Buyers found if they assumed a seller’s existing loan, they could usually obtain financing at a greatly reduced interest rate. To stop this practice (and offer loans at higher interest rates), banks began using the due-on-sale clause.
The truth is, most of today’s mortgages have this language. In fact, in a Fannie Mae or Freddie Mac single family mortgage, for example, it’s usually found in paragraph 17, where it’s called the “Transfer of the Property or a Beneficial Interest in Borrower”.
Uh-oh, right?
Not necessarily.
| Discussion: 1 Comment »
Does A Bad Appraisal Equal A Bad Investment?
May 14th, 2009 categories: Financing
Is a duplex a bad investment if it doesn’t appraise for the price listed on a purchase agreement?
It depends on whether you’re the buyer or the seller.
With a flood of foreclosure properties dragging down property values overall, it isn’t altogether uncommon for a property not to appraise.
Even if many of these duplexes are selling for comparable prices to the one you’re buying, they may not be able to be used as comps; simply because they don’t have a recent rental history for an appraiser to use in an Income Approach to valuation.
So what happens when the property doesn’t appraise?
There are several possibilities.
First, the seller could reduce his price to reflect the value determined by the appraiser. Of course, this would benefit the buyer greatly.
The buyer or seller could also order another appraisal to disprove the first.
However, if the buyer intended to use FHA financing, there’s a problem. FHA appraisals now essentially follow a property for six months. So, even if another buyer comes along to purchase the property, there is a record of the previous appraisal, which will prevent her from agreeing to a higher price.
On the other hand, if the buyer was using conventional financing with a 20-25 percent or more down payment, the low appraisal does not “follow” the property. In many cases, the lender, loan officer and Realtors involved may attempt to work with the appraiser to re-examine the value by providing additional comps.
If the value doesn’t change, the original lender may be unwilling to finance the purchase.
This does not prevent the buyer from ordering another appraisal, using a different lender, which may result in a more favorable outcome.
Of course, both the buyer and seller also have the option of simply walking away from the transaction.
Does the low appraisal mean the duplex is a bad investment?
As always, if the numbers work, and are in keeping with the buyer or seller’s financial goals, no.
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