Archive for the 'Financing' Category

Money, Money, Everywhere to Buy Your Minneapolis Duplex

said on November 6th, 2008 categorized under: Financing

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I swear on my dog, I found money for loans!
No. Not in the couch. And not at the pawn shop either.
See, it seems there are a lot of frustrated loan officers in the Twin Cities these days. And they have nothing to do but call and or/write to every real estate agent they’ve ever met.

Believe it or not, they aren’t frustrated by their inability to get money to lend people for houses. To the contrary.
They’re actually frustrated because they actually HAVE money to lend and nobody seems to believe them.
For example, last week I received an e-mail from Burnet Home Loans. It read: “First, frankly we have access to more funds to lend than we can actually use!  Our warehouse facility has a $350 Million capacity.  Given that most loans cycle through the warehouse in 15 days our group effectively has access to $700 Million a month!  This morning we were only using a fraction of the line.” ), I received a letter today from Vern Atwater over at Wells Fargo. It read: “There is plenty of money available for FHA loans (up to $365,000 locally) as well as conventional, conforming loans up to $417,000. It is true that the required documentation is more extensive than it used to be, but it is about the same as it was 20 years ago.”

Of course, those figures represent single family limits. In Hennepin and Ramsey county, FHA loan amounts are available for duplexes in amounts up to $467,500. Triplexes are capped at a $564,800 mortgage amount, and four-plexes at $701,900.

Burnet Home Loans adds that they still have more than 450 loan products to offer owner occupants.
So why does the public think money’s not available? True, it is tougher to get. Well, sort of. It seems you now have to be able to actually prove you have a job and something of a down payment in order to qualify. Nonetheless, it’s important to remember the down payment amount for an owner-occupied FHA loan is just 3 percent until January 1, 2009, at which point it increases to just 3.5 percent.

For the time being, money is a bit tighter for investors. Mortgage insurance companies are requiring lenders to secure a 10 to 20 percent down payment before they’re willing to insure a loan. In light of the wildly speculative nature of the market the past few years, it makes sense that for the time being, they would be more cautious.

Comments Off on Dash for Cash: Hurry and Save Money Buying Your Minneapolis Duplex

 

 
If you’re a real estate investor looking for a property, you might want to hustle a little in order to save some cash. Yes, there are some incredible deals available right now; interest rates are dropping, and there’s a lot of inventory.
 
But that’s not necessarily why you should hustle. It seems our friends Fannie Mae and Freddie Mac (who purchase most loans from lenders) are offering one more. Due to market conditions, they’re about to increase their lender financing fees. For Freddie, these fees take effect November 7. For Fannie, it’s December 1.
 
These fees will impact all levels of investors; from those with low down payments to those with a great amount of equity. Investors who purchase and finance a property with 10-15 percent down will encounter a 3.75 point adverse market fee. In other words, you can count on additional costs of $3750 per $100,000 you spend.
 
Buyers who have a 20-25% down payment will realize a small savings. Their adverse market fee will be 3 points. And, even those with more than a 40 percent down payment will receive a 1 3/4 percent add-on.
 
To add an even greater sense of urgency, some of the companies who insure low down payment mortgages plan to cease underwriting investment property loans altogether. This will serve to effectively cut off many low down payment, high leverage deals; no matter where the property is located. 

 

 

Grab A Paper Bag: FHA Changes Rental Income Rules for Loans

said on October 9th, 2008 categorized under: Financing

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I had a panic attack the other day when a co-worker informed me she just had clients get turned down for a loan because “FHA is no longer letting you count 75 percent of a property’s rental income toward qualifying for the loan”.
 
Gulp. That would nearly destroy the owner-occupied duplex market.
 
So I did some digging.
 
Turns out that yes, FHA did change its rules on using the rental income to qualify; on your purchase of a second home. According to HUD, FHA has seen an increasing number of homeowners choosing to vacate their existing homes and purchase a new one. This may be due to a number of reasons: a shorter commute, growing family, or simply a terrific opportunity.
 
If the homeowner isn’t able to sell the house or qualify for two mortgages on her own, she has a problem. Many are choosing to solve this by renting their first home out in order to cover the mortgage, which seems like a reasonable enough solution.
 
The problem is the FHA is concerned that in order to qualify for the second property, the homeowner may provide the bank with misleading facts as to the rental market value of their original home. Were this the case, the home may not demand enough rent to cover the mortgage payment and consequently, end up as another foreclosure.
 
Of course, there are always exceptions. In order to obtain a mortgage for a second property, the homeowner must be able to: qualify for both properties on her own, be relocating with an employer to an area not within a reasonable commuting distance, or have at least 25 percent equity in the first property.
 
The thinking with the latter is clearly that the homeowner has more to lose, and the FHA may prevent a “buy and bail”. What’s that? It’s when someone buys a more affordable house with the intention of no longer making payments on the first. Oh? And by the way? If you’re thinking of doing this, it is considered mortgage fraud, which is cause for legal action.
 
So can you still use 75 percent of the rental income of a duplex to help you qualify to buy the property? Absolutely! It pays to check the facts.
 
 

 

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 I’m mad at President Bush. It isn’t the first time. But never before have I actually agreed with the guy and been mad at him.
I think this time he’s telling the truth. So why am I mad? Because he didn’t explain to all of us exactly what’s going on in our economy.
 
I’ve spent the last week answering people’s questions, listening to all the talking media heads, reading and cobbling together any piece of information I can decipher to help me understand. And I think I get it. So I’m going to try to explain.
 
Once upon a time, not so long ago, we Americans went a little house crazy. Nothing terribly unique there. After all, home ownership is the American Dream. At the same time, in an effort to stimulate the economy, the Federal Reserve kept interest rates low. While this did not directly impact rates on home loans, it did mean the banks were making less money elsewhere. So, they did what any business does when its profit margin is slim (see WalMart); they concentrated on volume.
 
Meanwhile, many of the restrictions on lending; either to each other or us were eased. So, the banks were able to offer us more exotic types of loans: loans with no money down, interest only loans, stated income loans, 80-10-10 loans which didn’t require mortgage insurance, and adjustable rate mortgages (ARM). And in many cases, mortgage insurance was no longer required for borrowers with little equity in a property; making the purchase even more affordable.
 
Our Part
 
We liked houses. With low interest rates, and no longer having to scrimp and save for a down payment. Many of us who didn’t think we could afford a house suddenly discovered we could. So we went shopping. Read the rest of this entry »

Will the Bailout Help You With Your Minneapolis Duplex?

said on September 29th, 2008 categorized under: Financing

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The United states Capitol building in Washington, DC.

The United states Capitol building in Washington, DC.

While I planned to talk about the process of filing an eviction action today, more pressing matters came up over the weekend in Congress. Consequently, I’ll pick up that discussion later in the week.
 
One of provisions Congress insisted on being in the Emergency Economic Stabilization Act of 2008, or the bailout bill, was a provision requiring Secretary of the Treasury Hank Paulson, to implement a plan for the mortgages and mortgage-backed securities the government acquires that encourages mortgage servicers to modify the terms of the loans through programs like Hope for Homeowners.
 
Hope for Homeowners was a 300 billion dollar provision of the Housing and Economic Recovery Act signed by the president in July. It was hoped that up to 400,000 homeowners struggling to make their payments due to bad loans would, with permission of their lender, be able to refinance into FHA backed mortgages at a significant discount.
 
Sounds like a great opportunity, right?
 
But of course, there’s a catch. While the underwriting guidelines for the Hope for Homeowners program won’t be unveiled until the program goes live October 1, as of now it appears that investors and investor properties that are not owner-occupied will not qualify for renegotiation. This would make sense, as only owner-occupants of one to four unit properties qualify for FHA backed loans.
 
Steve Linnin, a loan officer with Hopeforhomeownersprogram.org, told me he believes that if an owner originally purchased and owner-occupied a multi-family property using an FHA loan, then later purchased another property for their primary residence, they too would be ineligible to refinance the mortgage on the first property under this program, as they no longer owner-occupy it.
 
This is not a panacea for everyone. The FHA has caps and limits as to the amount of the loans it will back for various geographic areas. 
 
It promises to be an interesting week.

Comments Off on Is There Light at the End of the Tunnel for Seller Funded Down Payments?

Light in TunnelThere’s reason for a bit of cautious optimism in Washington. On Tuesday, the House Financial Services Committee, which is chaired by Rep. Barney Frank, will review HR 6694. The bill would allow the Federal Housing Administration to continue to allow the use of seller-funded down-payment assistance on FHA-backed loans through non-profit agencies like Genesis, Ameridream and Nehemiah.

In a tough economy, few first time home buyers have saved the 3.5 percent required for a down payment in order to qualify for an FHA loan. First time home buyers will be the engine that leads the train of any housing recovery, so it would seem at this dark hour the prudent thing to do would be to give them not only a $7500 tax credit, but help in qualifying for the loan in the first place.

The department of Housing and Urban Development (HUD), argues that these programs artificially inflate home prices and ultimately increase the risk of the loan going into default. In 2007, the default rate for seller-funded loans was 28 percent; three times the rate of conventional FHA loans. As a result, these programs are presently scheduled to end on October 1, when the recently passed Housing Bill takes effect.

To compensate for the increased risk, HR 6694’s bi-partisan team of sponsors, Rep. Al Green [D- TX], Rep. Christopher Shays [R – CT], Rep. Maxine Waters [D- CA] and  Rep. Gary Miller [R- CA], drafted the bill to allow HUD to implement risk-based pricing on FHA insurance premiums. In other words, much like more conventional loans, the better your credit score down payment, the better your interest rate. If you have a lower credit score and little to no down payment, it would be reflected in a higher interest rate on the loan.

Two of Minnesota’s representatives sit on the committee; Rep. Michelle Bachmann [R] and Rep. Keith Ellison [D]. Be sure to write or call their offices and express your support for the bill. Believe it or not, they do listen. It is an election year after all.

Comments Off on Twin Cities Duplex Buyers Impacted by Housing Bill

ChargeThe Housing and Economic Recovery Act passed by Congress and signed into law by President Bush on Wednesday is a mixed bag for first time home and duplex buyers.

The most dramatic and immediate impact will be felt by those who needed to avail themselves to down payment assistance programs like Ameridream, Nehemiah and Futures. These programs allowed sellers to make contributions toward a buyer’s down payment, with that contribution folded into the buyer’s loan. Essentially, it was an FHA version of a no money down loan which helped millions of first time home buyers.

Why did Congress do this? Well, the thinking was since most of these transactions involved inflating the purchase price of the property by three percent, then obtaining financing in that revised amount, property values were artificially inflated. This, theoretically anyway, helped create the crisis we are in now.

On a personal note, this has not been my experience.

Most first time homeowners in the Twin Cities are uncomfortable buying a home or a duplex in which their payments are greater than the equivalent of a $150,000 mortgage. Three percent of $150,000 is $4500. Buying a $150,000 house for $154,500 isn’t the kind of grossly inflated pricing that has caused this crisis. Most appraisals fall in a range anyway, and an honest appraiser will be frank as to the property’s true value.

After October 1, 2008, no one with a financial interest in the sale of a property may contribute toward a down payment. It does not, however, prohibit buyers to receive assistance from other programs provided by nonprofit agencies or gifts from family members. In other words, until the smoke clears, no raising the purchase price by three percent for the down payment. The buyer will need to have that money saved.

However…

The new requirements for an FHA loan will raise the required down payment for all borrowers (FHA loans are available to all buyers, not just those purchasing a home for the first time) from three to 3.5 percent.

Historically, FHA loans have been capped at an amount roughly equivalent to the median home price of an area. The bill makes permanent the temporary FHA loan limits which were increased earlier in the crisis. These loan limits are the greater of $271,050 or 115 percent of the local median home price, which cannot be greater than $625,000. This should help more owners and buyers take advantage of FHA loans, which typically are easier to qualify for and at a lower interest rate than a jumbo loan.

A bit of good news in the bill is it contains a Homebuyer Tax Credit of $7500 which would be available for first time buyers who purchase a home between April 8, 2008 and June 20, 2009. This credit is repayable over 15 years.

Of course, the hope is that this helps stimulate the lower end of the market, the momentum of which would help pull the rest of the housing train forward.

Comments Off on Is Foreclosure Relief on the Way for Your Twin Cities Duplex?

Heavy HousePresident George W Bush signed into the law The Housing Stimulus Bill yesterday. Within five minutes, I received countless emails and phone calls inquiring as to what it all means.

I’ll address as many as I can over the next several days.

First, will it end the foreclosure crisis this year? Probably not.

The program won’t take effect until October 1, though being a government endeavor, it’s likely it won’t be fully operational until next year. And, not everyone who’s in trouble is going to qualify for assistance. The program will help up to 400,000 troubled borrowers. Some economists feel millions of homeowners may in fact be at risk.

Eligible recipients must have spent 31 percent of their monthly income on their mortgages. The loan needs to have originated before January, 2008, and of course, the borrower still needs to have the income to qualify for the loan. And, the relief is limited only to properties that are the borrower’s primary residence.

The bill will also allow those who do to cancel their old mortgages and replace them with a 30-year-fixed-rate loan for as much as 90 percent of the property’s appraised value. The lender would have to agree to write down the amount of the loan to 85 percent of its current value. This loan, would in turn, be guaranteed by the FHA.

In exchange, the lender would get to share half of the home’s appreciation over time. So, if the property goes up in value $100,000 over the next few years, the bank would get half of that profit.

Of course, the decision as to whether or not to do the loan still remains with the bank.

For more comprehensive highlights of the housing bill, please see the National Association of Realtors synopsis.

Comments Off on How To Buy A Twin Cities Duplex and Finance the Repairs in a Tough Lending Market

hurdelOne of the biggest hurdles buyers face when considering a foreclosure property is the amount of repairs many require simply to be inhabitable. After making the down payment, where does the cash come from to replace the blown radiators or copper pipes, or even to simply paint?

 

It’s hard to believe, but the FHA is coming to the rescue with what has been christened a 203K Streamline Renovation loan.

Basically, the product is for owner-occupied 1-4 unit properties. It allows buyers to include and finance the cost of up to $35,000 in repairs right into their mortgage.

The loan is included in a single mortgage on the property, which can be for up to 110% of the value of the property after the repairs have been completed. For example, if a property is purchased for $100,000, and after repairs are made an appraiser feels it will be worth $120,000, the buyer can obtain financing for the repaired value.

What can be included? Almost anything: heating and cooling systems, plumbing, appliances, painting, kitchen remodels and a plethora of normal improvements one would make to a home.

 

Is it only for the neighborhoods where revitalization projects like City Living are an option? No. The loan can be used anywhere.

There are only a couple of restrictions to the loan. Basically, the improvements must begin within 30 days of closing, and be completed within six months.

 

The work must be performed by licensed contractors. The contractor is given one half of the money when the job begins, and the balance upon completion. The FHA wants to be sure the contractor is legitimate and isn’t going to run off with the funds without doing the work. Therefore, they do require the homeowner to use a contractor they’ve approved. Home Depot, Lowes and Sears are all nationally approved contractors.

These loans should help a lot in getting some of the foreclosure properties sold. So why isn’t everybody aware of and using them? Nobody knows  about them.

 

While others are working on it, to date, the only lender in the Twin Cities who offers the 203K Streamline Renovation loan is Wells Fargo.

Comments Off on FHA Suspends “Anti-Flipping” Rules on Twin Cities Foreclosure Duplexes

Log CabinBack in the olden days — when gas was cheap and property went up in value…as long as 18 months ago…the federal government’s department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) implemented “anti-flipping” rules to help stem fraud during the housing boom.

Under these rules, neither agency would insure mortgages on properties that had been owned by the seller for less than three months.

The purpose was to prevent people from using low-down payment FHA loans to buy foreclosures at incredibly low prices, then resell them within days for enormous profits.

According to Realty Times, the FHA is temporarily suspending its moratorium through June, 2009.

Of course, investors will still have to be able to qualify for the loan. But the resale buyer will not be prohibited from buying the property using an FHA loan simply because it sold within the previous 90 days.

Let’s hope this temporary reprieve helps absorb some of the excess foreclosure inventory.