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16 Reasons Your Duplex Qualifies For A Short Sale: Even If You Haven’t Missed A Payment

July 1st, 2010 categories: Financing

I want to dispel an urban myth.

No, not the one about alligators in the sewers.

The one I’m talking about is you have to be behind on your duplex payments or in the process of foreclosure in order to sell your property as a short sale.

Not true.

According to the Distressed Property Institute, there are a number of reasons that cause a property and duplex owner to become a “distressed” property. They are:

1. Payment Increase or Mortgage Adjustment- Many property owners who took out interest only or option ARM mortgages between 2005-2007 may experience a jumps in their monthly payments of anywhere from 60 -300 percent in the next year. Actually, these resets are the top reason for distress in today’s market.
2. Loss of Job – With a job loss comes the loss of income which contributed to paying the mortgage and bills.
3. Business Failure – Like a job loss, people who lose their businesses lose their income, resulting in mortgage payments being missed.
4. Damage to Property- No matter how good your insurance is, it often doesn’t cover all of the damage. Not having enough money to fix the property, many homeowners use the insurance settlement to cover living expenses.
5. Death of a Spouse – This will not only cause emotional duress to surviving family members, but may also cause the loss of the person who paid the mortgage.
6. Death of Family Members- Even if the deceased person didn’t contribute toward the duplex payment, the emotional loss may have ripple effects.
7. Severe Illness – The medical bills associated with something like cancer and the time lost on the job can be devastating.
8. Inheritance – Doesn’t make sense, does it? But, what if grandma leave you her house– that has a monthly mortgage payment of $5,000?
9. Divorce – Imagine the cost of attorneys and two living spaces.
10. Separation – Again, separate living spaces when perhaps, both parties were paying the mortgage.
11. Relocation – If your employer asks you to transfer, chances are in this job market that you’ll take the opportunity. However, many employers don’t offer compensation for homes or multiple house payments.
12. Military Service – While there are some opportunities for relief, extended miliary service can cause financial stress.
13. Insurance or Tax Increase – An increase in either of these often results in higher mortgage payments.
14. Reduced Income- Many employees have been asked to grant wage concessions in order for their employer’s companies to survive. Those who work on commission may also be suffering reduced income due to the economic slowdown.
15. Too Much Debt – An increase in credit card interest rates, or sudden, unexpected expense can result in a duplex payment being too large.
16. Incarceration - It’s tough to keep your job when you go to jail. And at prison wages of pennies per hour, it’s tough make a mortgage payment.

If you’re facing any of these challenges, remember there is a solution besides foreclosure. A short sale will likely result in your being able to a much faster financial recovery, as well as keep the permanent black mark of foreclosure off your credit report.

Call me. I’d be glad to help.

Spoken by Kari Lundin | Discussion: No Comments »

Why Mortgage Brokers Don’t Smoke Cheap Cigars

June 10th, 2010 categories: Financing

The other day I had clients with a huge down payment and spectacular credit scores suddenly find themselves unable to get a loan from a traditional bank on a slightly unusual home they wanted to purchase.

When I suggested they contact a mortgage broker I knew who could help them, they panicked.

They said they didn’t want to overpay and didn’t want to get taken. They had great credit and shouldn’t have to go to a mortage broker to get a loan.

That’s when I realized perhaps they were confusing a mortage broker with a loan shark.

A mortgage broker is not a high interest, hard money lender who wears a fedora, smokes a cigar and meets borrowers in a lonely, dark alley.

A mortage broker is simply someone who works with several different banks and lenders, which allows her to compare interest rates and prices for her clients, as well as find them alternate sources of financing if oneparticular institution is resistant to lending on the property.

One mortgage broker may offer loans from reputable institutions like U.S. Bank, Citimortgage, Chase and Bank of America. She may also have relationships with other, smaller investors (banks), who are more willing to lend on unusual properties.

In my client’s case, the underwriter at the traditional bank they initially consulted for financing chose to interpret guidelines issued by Fannie Mae and Freddie Mac more restrictively than they were written. As a result, the bank’s loan officer, being an employee of that institution, couldn’t help them any further. She had one choice only, and the answer was no.

The mortage broker, on the other hand, was able to consult several equally prominent lending institutions and quickly find my clients a loan.

Spoken by Kari Lundin | Discussion: No Comments »

How Not To Flip Out Over That Cute Duplex

May 24th, 2010 categories: Financing

Let’s face it. Some of the duplexes and single family homes on the market right now are a little, uh…skanky.

Some of you are thinking, so? With a FHA 203k construction loan , a little professional help and some sweat equity, you’re good to go.

But what if you’re not an HGTV addict who’s convinced you can fix it all yourself?

If you’re lucky, you’ll stumble into a property that an investor has purchased, rehabbed and made move-in ready.

Of course, the tradeoff is the investor wants to earn a profit. That’s perfectly fair. However, it may also stop you from getting an FHA insured loan.

See, even though FHA suspended it’s anti-flipping rule through February 1, 2011, many FHA insured investors aren’t willing to lend on properties a seller has owned for less than 90 days and, or, has been marked up more than 20 percent from its purchase price.

Until recently, there had been some exceptions. A handful of banks were willing to offer a mortgage on a rehabbed duplex, provided the seller could produce ample documentation of the costs of the repairs and improvements they’d made.

However, it seems there’s suddenly some resistance to this, according to loan officer Dean Schiffler of PHH Home Loans.

Don’t panic. There is a relatively easy remedy for this.

The rule was established to prevent fraudulent flippping.

Basically, someone would buy a house, do some minor cosmetic changes, then resell it to someone for an enormous profit. Usually the latter was in on the scheme, and would quickly default on the loan. This resulted in a foreclosure and a fraudulent loan.

For some reason, lenders seem to believe that after someone has owned a property 91 days, fraud is no longer a probability. I haven’t a clue why 90 days is the magic number, but it is.

So the simple solution to buying that cute, well-renovated duplex is this; make sure the date on the purchase agreement you give that rehabber is dated at least 91 days after the date they closed on the property.

Spoken by Kari Lundin | Discussion: No Comments »

Duplexes Celebrate Non Conforming Use Week

May 14th, 2010 categories: Financing

Sometimes my days and weeks feel like it’s Spirit week in high school. You know those weeks; the ones where you dress up as something different every day to celebrate something which may or may not be significant.

Back then, I might have celebrated ’60’s day. Punk rock day. Or nerd day.

In real estate, however, sometimes I celebrate suburbs day. Or short sale day. Or multiple offer day. And just like in high school, I like some more than others.

This week, I had the chance to dress up for non-conforming unit day.

A non-conforming rental unit is usually found in a property not zoned for a multi family dwelling like a duplex or triplex. These are usually found in the basement or attic of an existing property, and may or may not conform to local building codes.

These units are often very nice, and it’s hard to imagine anyone not wanting to live there. Their best feature, however, is the additional revenue they generate for the property owner.

There are, however, a couple of problems with them, the most important of which is the bank will not allow you to use the income from them to qualify for a the loan to purchase the property.

The theory goes that a city inspector may discover the unit and force you to remove it, thereby causing you to lose the revenue it generates. And a tenant may well be the one who told the city about the “illegal” use.

The city may do so due to the duplex not being zoned for multi-family property, or for improper workmanship, lack of proper permits and so forth when it was constructed.

This doesn’t mean the building itself is ineligible for financing, however.

To qualify, the appraiser must provide at least two comparable sales with similar illegal use to demonstrate this use is typical to the area. In addition, in the even the property is damaged or destroyed, it must be able to be rebuilt to its present status.

A single family home may also face such a challenge if it has a mother-in-law apartment or guest house. It must also conform to zoning requirements and provide comparable sales of two similar properties.

Sure hope next week’s theme is let’s all buy a duplex!

Spoken by Kari Lundin | Discussion: No Comments »

Duplex Rates Plummet With Stock Market

May 7th, 2010 categories: Financing

With last week’s end to the home buyer tax credits and yesterday’s inexplicable 1000 point slide on the stock market, historians might think it would be a good day to check tall buildings for jumpers.

Of course, every dark economic cloud has a silver lining, right?

Well, maybe not. But this one did. It seems investors fled from the stock market and into Treasury bills, which drove the yield down. The result? Interest rates on 30-year mortgages plummeted.

At one time on Thursday it was actually possible to get a 30-year fixed rate of just 4.5 percent.

Things have settled down in the 24 hours since, but the good news is both FHA and conventional owner occupant interest rates for the weekend settled in at 4.875. 

The difference in monthly interest between a rate of 4.875 and 5 percent amounts to about 40 cents per $1000. So, if you purchase a $300,000 duplex, this seemingly small rate difference could actually result in your saving about $120/month, $1440/year or $43,200 over the life of the loan.

That’s reason enough to stay off the building’s ledge, and consider instead, duplex ownership.

Spoken by Kari Lundin | Discussion: No Comments »

Why Internet Lenders Are A Lot Like Sea Monkeys

April 15th, 2010 categories: Financing

I used to stare endlessly at the ads in comic books for sea-monkeys.

You know the ones.

They typically featured a cartoon of a little pink sea-monkey family, with their castle in the background.

There was also an image meant to resemble my family enjoying staring at my sea monkeys swimming around in a fish bowl. Of course, these sea-monkeys were waving at us.

Who wouldn’t want a pet like that? Heck, not even my dogs never waved at me.

Of course, when I ordered the sea-monkeys, they weren’t at all what I’d imagined. Oh, they were miraculous to watch hatch. But they weren’t pink, didn’t have a castle and most certainly did NOT wave back.

In fact, they were nothing more than shrimp. Brine shrimp.

Internet lenders remind me a lot of sea-monkeys. They promise to deliver lower interest rates, lower loan origination fees, faster closing dates and yet, no matter what Realtor you ask anywhere in the nation, you’ll get the same answer; they almost never come through.

And on the rare occasions when they do, nothing was what it appeared to be.

Most Realtors have a select handful of local loan officers they recommend. Agents get paid nothing for referring someone to a loan officer.

The reason we suggest our buyers work with these people is from experience, we know they can be trusted to tell our clients the truth, work hard to get them the best deal, and help them close on their new home on time.

Again, there is absolutely nothing in it for us to make these recommendations.

It’s easy for a loan officer who’s 1500 miles away to tell you to just hang out for two weeks while they get your loan together.  They can’t see your moving van loaded with furniture out in the parking lot.

It’s a lot tougher for a local loan officer to avoid looking you in the eye.

Or not wave back.

Spoken by Kari Lundin | Discussion: No Comments »

What’s The Minimum Down Payment On A Duplex?

April 12th, 2010 categories: Financing

To buy a duplex, you need at least 20 percent down, right?

Wrong.

Remember, if you’re looking to owner occupy a duplex, triplex, or even a four unit apartment building, you have the option of using FHA insured financing.

While FHA recently increased its minimum down payment requirements, 3.5 percent is still within reach of many home buyers.

Best of all, if you don’t have that much saved, there’s no limit to the amount a blood relative can gift a buyer for  use as a down payment, closing costs, etc.

Of course, if you have a signed purchase agreement in place prior to April 30, you may also qualify for the $8000 first time home buyer or $6500 tax credits.

Spoken by Kari Lundin | Discussion: 2 Comments »

If Your Duplex Buyer Can’t Find A Bank, Be One

March 18th, 2010 categories: Financing

Let’s face it. Due to foreclosures, short sales, job losses and tightened lending standards, fewer prospective duplex buyers can qualify for loans.

Ultimately, this translates to fewer potential buyers for properties, which contributes to declines in value.

Months and months ago I predicted we’d see the re-emergence of the contract for deed as a financing option. In recent days and weeks, I’ve begun to see just exactly that.

A contract for deed, which is sometimes called a land contract, is a means of financing a property in which the seller becomes the bank.

Of course, acting as the bank for a buyer carries inherent risks and rewards for a seller.

Benefits include:

• A much faster sale, as there’s no waiting for mortgage underwriting or loans to be funded.
• A way for a seller to simply get out of a property
• A way to ultimately be paid more for the duplex than a traditional sale would offer, in that the seller would be earning interest as part of the payments.
• Less stringent foreclosure laws which allow the seller to regain all rights to the property within 60 days of default, while keeping any of the monies from the payments or sale.
• A way for an investor to spread capital gains tax over a period of years, thereby allowing for more comprehensive tax planning and savings.
• The monthly payments may ultimately result in greater cash flow than was available to the seller as a landlord, without the headaches of maintenance and vacancies.
• A balloon payment two, three or five years in the future, which allows the seller to retain the balance of their equity in a lump sum.

The risks of carrying a contract for deed can be:

• Having to foreclose on the property, thereby being forced to manage and/or sell it all over again.
• Having to make repairs after the foreclosure
• Buyers may not have enough of a down payment to cover seller’s closing costs, resulting in the seller having to go into their pockets to pay the difference
• Triggering a due-on-sale clause with your mortgage company.

Having weighed both the benefits and liabilities, many traditional sellers are finding a contract for deed to be a way to solve the problem of being stuck in a property they no longer care to own.

Spoken by Kari Lundin | Discussion: No Comments »

Congress Threatens To Require Higher FHA Down Payments

March 12th, 2010 categories: Financing

Once upon a time, way back in 2005 and 2006, you could buy a duplex with no money down.

Then the housing crisis happened. And in an effort to make sure buyers had more at stake, banks decided they would only give loans to investors with 20 to 25 percent down, or owner occupants who qualified for FHA insured financing and had three percent for a down payment.

Then the Federal Housing Administration decided they would only insure loans of owner occupants who had 3.5 percent for a down payment.

Fair enough. That increase didn’t deter too many borrowers.

However, according to a report in the Wall Street Journal, a bill now in Congress advocates for FHA insured loans to require a 5 percent down payment. The thinking goes that if borrowers have a bigger equity position, they are less likely to default.

While that still doesn’t seem like nearly as big of a jump as a 20 percent down payment would, FHA Commissioner David Stevens testified that slight adjustment would eliminate 40 percent of new FHA loans; the equivalent of 300,000 transactions a year.

Fewer sales would, of course, result in fewer mortgage insurance premiums being paid to FHA, which doesn’t make loans, but simply insures them. This loss of revenue, Stevens contends, would in turn put the already financially stressed institution on still shakier ground.

No word on which way Congress is leaning.  The imminent expiration of the first time and repeat home buyer tax credits, looming interest rate increases and the threat of higher down payments, however, mean now is the perfect time to buy.

Spoken by Kari Lundin | Discussion: No Comments »

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.

Spoken by Kari Lundin | Discussion: 1 Comment »

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