Comment
As if things weren’t already challenging for Minneapolis duplex investors, along comes the news that on May 1 the national rules for real estate appraisals will change.
Lenders will have to guarantee that every loan they sell to Fannie Mae or Freddie Mac complies completely with something called the HVCC or home valuation code of conduct.
As the bulk of loans for non owner-occupant investors are sold to Fannie or Freddie, they are the ones likely to be most adversely effected.
The new code will prohibit mortage brokers from ordering appraisals. Instead, third party appraisal management firms will pick appraisers from their own networks.
The code also requires a buyer to pay for an appraisal up front rather than rolling the cost into closing costs.
So what if a property appraises too low and another appraisal is necessary in order to close? Does the buyer have to pay again? Yes.
What if the buyer is intending to live in the duplex? Do these new rules apply?
No. FHA has its own rules for appraisals, which to date, don’t include the HVCC.
said on September 29th, 2008 categorized under: Financing
Comment
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.
said on September 12th, 2008 categorized under: Financing
Comment
There’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.
Comment
Most home buyers are familiar with FHA loans, which historically have been one of the best ways to purchase a home with as little as a three percent down payment. With these loans, the seller typically contributes up to three percent of the sales price toward the buyer’s closing costs and prepaids (such as insurance reserves), saving the buyer these costs. These contributions are capped by the lenders at three percent.
What most buyers don’t know, however, is that through what are called FHA Preferred Programs, the seller may gift an additional three percent to a non-profit agency that assists buyers in obtaining the necessary three percent down payment for an FHA loan. The most familiar of these agencies are Genesis, Ameridream, and Nehemiah.
Confused? Let me try to clear it up. Say you pick out a house you like that’s $100,000. Instead of offering a lower price, you could ask the seller to apply three percent of that price toward your closing costs; money that would come out of his pocket, leaving him with a net of $97,000.
You could also ask that he participate in one of the FHA Preferred Programs and donate an additional three percent to one of these non-profit agencies, as well as pay a required administrative fee(usually a few hundred dollars) . This agency would then make a gift to you of the three percent down payment.
By asking the seller for these two contributions, you are in effect, really offering the seller $94,000, as that’s what he’ll net after making these concessions.
Sometimes the seller will agree to pay one and not the other. If this is the case, it is often possible to raise the price slightly so the that the seller nets a higher amount. For example, the offer could name a price of $103,000, with the seller making the down payment and closing cost contributions. This would leave him with a net of $97,000. Of course, the transaction would be contingent on the property appraising for the higher amount.
Agents have been helping first time home buyers take advantage of these Preferred Programs for years. What very few Realtors realize, however, is that these opportunities are available to any property that qualifies for an FHA loan.
In other words, you can still buy a duplex, triplex or fourplex to owner occupy with nothing down!
Comment
I showed a gorgeous duplex in southwest Minneapolis to some first time home buyers last weekend. It was one of those big, sweeping properties many of us have often driven by and wondered whether the inside was beautiful as the outside.
The people I showed the house to were surprised to learn they could actually get an FHA loan for a duplex. Or a triplex. Or even a fourplex. But they’re not alone. Most people don’t realize that small, multi-family properties are viewed by the banking industry much the same as single family homes. And FHA insures the financing. Of course, this benefits only those who want to owner occupy a multi-family property.
As with single family homes, FHA has temporarily raised loan limits on multi-family properties. In the Twin Cities metro area, current loan limits are:
Duplex (Two Unit) – $467,250
Triplex (Three Unit) – $564, 800
Four Unit – $701,900
In other words, a buyer could purchase a $481,000 duplex with just the required FHA 3 percent down. Or less. But I’ll talk about that tomorrow.
