Duplex Market Has Something Up Its Sleeve

said on April 6th, 2010 categorized under: Twin Cities Real Est

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Little easter lop rabbit in a magician's hatWas it a rite of spring?

Or a magic act?

Either way, the Minneapolis duplex market managed to pull a rabbit out of its hat the week ending March 27, with pended sales up 62.5 percent from the same week one year ago.

Of those proeprties that received purchase agreements, 28.21 percent were signed by traditional sellers. While this seems like a disappearing act compared to previous weeks, it’s important to note that ALL of the pended sales for the week in 2009 were offered or mediated by financial institutions.

A still more stupendous feat may well be the fact that the average off market price for the week was $110,077. This made last year’s average sale price of $64,605.

For the week, new inventory performed something of a disappearing act; dropping 26.15 percent from last year. Again, this should help put upward pressure on prices.

The opposite was true in the single family home market. New listings for the week were up 29.4 percent over one year ago.

The good news is pending sales were up 13.8 percent, with the total number of signed purchase agreements topping 1000.

While not as impressive of a trick as making an airplane disappear, has managed to reduce the Supply-Demand Ratio to just 4.39 homes per buyer; the lowest it’s been in years.

Let’s hope there’s more magic yet to come.

Congress Threatens To Require Higher FHA Down Payments

said on March 12th, 2010 categorized under: Financing

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piggy bank elderly fullOnce 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.

When Can You Get The First Time Home Buyer Tax Credit?

said on December 18th, 2009 categorized under: Tax Credits

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filling out tax formIf you buy a Minneapolis duplex before the end of the first time home buyer tax credit ends on April 30, 2010, can you get your $8000 check now or do you have to wait until you file your 2010 returns?

After all, the original version of the credit  could be claimed against 2008 or 2009 taxes.

The good news is for all qualifying purchases in 2010, first time owner occupant duplex buyers can take the credit on either their 2009 or 2010 tax returns.

However, anyone who purchased a property after November 6, 2009, needs to use a new version of Form 5405, which should be issued by the IRS in the next few weeks.

5 Reasons To Buy A Minneapolis Duplex Now

said on November 2nd, 2009 categorized under: Buying A Duplex

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snowCome winter, most duplex buyers turn their thoughts to the holidays and devising survival tactics to make it until spring.  After all,  icey sidewalks and knee deep snow are hardly inspiration for moving, right?

Well, here are five good reasons why everybody should.

1. The Tax Credit – While we’re still waiting for Congress to officially act on extending the $8000 first time home buyer tax credit, signs coming from Washington are encouraging. It looks, at the very least, as if there will be a new deadline of April 30th in order to qualify for the credit. Remember, in Minnesota, if you wait, sometimes it still snows in April.

2. Low Interest Rates – On Friday, both 30-year fixed conventional and FHA loans were at 4.875 percent. For those who are qualified, money is historically cheap to borrow.

3. Banks Don’t Wait Until Spring – Like many buyers, most traditional home and duplex sellers believe spring is the optimum time to move. As a result, they wait until they’ve seen the first robin to put their home on the market. However, banks don’t typically have the luxury of timing the market, and list their foreclosure inventory year-round.  This means there will be plenty of properties to choose from through the long, frozen months.

4. Fewer Buyers to Compete With – One of the challenges people rushing to beat the November 30 first time home buyer tax credit deadline ran into was they were not alone. A mad crush of buyers resulted in multiple offers on the more desirable properties, and a venerable frenzy to get there first. Winter, and its challenges, will keep many of those potential competitiors home until the first thaw; meaning you’re more likely to be able to buy a good property at a fair value, rather than a number that’s been inflated by fear.

5. You’ll Save A Lot of Money– Believe it or not, perhaps due to the preponderance of bank-owned properties on the market, the average sales price of a duplex that sold between October 1, 2008 and Februrary 1, 2009 was $23,000 lower than that of properties that sold between May 1, 2009, and August 1, 2009. 

Last I checked, professional movers didn’t cost anywhere near that much.

The Housing Market: By The Numbers

said on September 25th, 2009 categorized under: Twin Cities Real Est

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numbersThere was a lot of news in the housing sector this week.

First came the report that existing single family home sales, declined 2.7 percent in August from their July mark. While this drop of 140,000 units was disappointing, sales for the month were nonetheless 3.4 percent above their August 2008, mark.

This was the first setback in four months, during which sales rose a total of 15.2 percent.

A survey conducted by the National Association of Realtors reveals first-time home buyers purchased 30 percent of the homes sold in August, and 31 percent of all transactions were for lender-mediated properties.

Of course, these distressed properties tend to warp the median price of existing homes. Selling for 15 to 20 percent less than those marketed by traditional sellers, the foreclosures helped force the national median existing home price down 12.5 percent to $177,700.

New construction accounted for 6.7 percent of the total homes for sale. In other words, traditional homes account for the remaining 93.3 percent.

The one bit of good news is the amount of inventory for both has dropped significantly.

Comments Off on How A Minneapolis Duplex Can Help You Beat The Multiple Offer Blues

sax and the musicianI stumbled into a story on MSHNBC the other day that reminded me why there has never been a better time to become the owner-occupant of a Minneapolis duplex.

The story chronicled the struggles of a pair of first time home buyers in Phoenix, Ariz. who had written no less than 15 offers on single family homes only to be outbid in multiple offers every time. In several cases they hadn’t even lost to other potential home owners. Instead, they’d lost out to investors; with cash, no need for appraisals and fast closing dates.

Needless to say, they were getting pretty down about it.

While Minneapolis isn’t Phoenix, it’s happening here too. The most affordable homes in desirable neighborhoods are being scooped up either as potential rehab and sell properties, or to be held as rental units. 

But aren’t investors buying duplexes as income properties?

Yes and no.

With tightened lending practices now requiring duplex investors to have a minimum o Read the rest of this entry »

Comments Off on Translation: How To Get The $8000 Tax Credit For Closing Costs

legal mumbo-jumboEvery 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.


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.

Read the rest of this entry »

Comments Off on Using Tax Credit As Downpayment Would Jumpstart Duplex Market

moneyWhile things seem to be heating up in the Twin Cities duplex market, some states are cranking up the thermostat even further by implementing bridge-loan programs that advance first time home buyers the cash they need to purchase a property.

For all intents and purposes, the loan acts as a second mortgage that becomes due whenever the buyer of the property receives their first time home buyer tax refund from the IRS.

I have encountered numerous credit-worthy first time borrowers out there. However, many do not have enough money saved for the minimum 3.5 percent FHA down payment requirement. While parents have always been a resource for many first time home buyers, many parents have seen their availability of extra funds shrink with their 401(k).

States that have created some variation of a down-payment loan program are: Missouri, Colorado, Delaware, New Jersey, Tennessee, Idaho, Washington, Ohio, Pennsylvania and New Mexico.

While I have not heard of an equally innovative program in the works for Minnesota residents, it never hurts to suggest one to your representatives in the state legislature.

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Bank owned sign posted on a boarded up house in ForeclosureThe other day, a reader asked an outstanding question.  He’s in the process of buying a duplex using an FHA 203(k) construction loan and wondered what number his first time home buyer tax credit would be based on.

The 203(k) loan is one in which a buyer can purchase a distressed property at a discounted price, but borrow an amount up to 110 percent of the value of the home were it in good condition in order to finance the repairs.

In this case, the purchase price of the property is $108,000, he is planning on borrowing an additional $20,000 to use for rehabbing the duplex.

The combination of the two will leave the buyer with a mortgage of $128,000.

So is his first time home buyer tax credit based on the owner occupied portion of the purchase price ($108,000 x .5 = $54,000 as the basis for his home. Ten percent of this, or $5400 may be applied toward the tax credit.)

OK, but a 203(k) loan is based on the purchase price and the repairs. Shouldn’t he receive a credit for the final loan amount of $128,000?

Sadly, no. According to a loan officer friend who does a great deal of these with a major national bank (who won’t allow him to speak on the record), the tax credit isn’t based on the loan amount, but the price reflected in the purchase agreement. The 203(k) loan amount isn’t recorded on that document.

The 203(k) is viewed more as a first mortgage plus a construction loan.

In other words, the tax credit here is based on one half of the purchase price or $54,000.

Great question!

Is It Cheaper To Own Than Rent A Minneapolis Duplex?

said on April 13th, 2009 categorized under: Buying A Duplex

1 Comment »

Scale 4A reader recently asked me to name cities where it’s cheaper to own a property than rent. That’s a big question, but easy to answer.

It’s cheaper to own than rent in most.

How’s that possible?

The secret is in the buy.

Perhaps a better way to phrase the question is to tell me either how much you’re paying in rent, the amount of the house payment you’re willing to cover, what neighborhood you’d like to be in, the amenities you’re seeking and the amount of repair or maintenance you’re willing to do.

Of course, it’s paramount you have a conversation with a qualified loan officer to determine whether you can get a loan, as well as the price range we can shop in.

From there, we work the numbers backwards.

Remember, there’s another unit or units paying a substantial portion of the mortgage. How much you pay in “rent” (in this case your share of the mortgage) is largely contingent on how much everyone else is paying.

Who pays the heat? This too could effect how much you pay.

How much are the property taxes? In a down market, is it possible for them to be reduced?

It’s important to note that while in the state of Minnesota you do get something of a tax credit through a Certificate of Rent Paid, it pales in comparison to the tax deduction you receive for the amount of mortgage interest you pay.

Oh? And if you haven’t owned a home in the last three years, the government will pay you $8000 to buy one before December 1.

And finally, don’t forget. You get to depreciate the part of the property you don’t live in.

Got a specific number or financial goal in mind? Let me know. I’d be happy to help you achieve it.

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