Archive for the '* Mortgage & Loans' Category

* Are HUD Homes Making a Comeback?

Published October 3, 2008 * Buying , * Mortgage & Loans Leave a Comment
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HUD Homes are government foreclosures.  Basically, if a home was purchased with a federally insured loan (FHA) and it foreclosed, then the Department of Housing and Urban Development (HUD) takes over the property.  They then assign the foreclosure to an asset management company to coordinate the sale.

Famous for offering affordable housing opportunities, HUD uses a bidding process to liquidate their inventory.  Similar to a silent auction, they place properties up for sale with a bid deadline.  Typically a 5-7 day window.  During this time, buyers are invited to inspect the listing with a real estate agent and submit offers electonically via the internet.

In most cases, the properties are offered first to “Owner-Occupants”, persons seeking to buy the home as their primary residence.  If after the initial round of bidding, the home is not awarded to an owner-occupant, then investors are welcomed to bid.

Over the past couple of years HUD Homes have been somewhat tough to come by.  The trend is mostly attributed to 3 key factors. 

  • First, during the Utah housing boom, prices inflated making it easier for distressd property owners to unload their homes before the bank foreclosed.
  • Next, FHA loans which are known for their looser qualifying and down payment requirements, became second favorite to 100% Conventional financing options during the housing boom.  Conventional loans at the time offered enticing variable interest rates with virtually no money out of pocket.  Additionally, many conventional lenders would allow buyers to “state” their income without further verification.  Ultimately, the number of FHA loans plummeted.
  • Lastly, if a homeowner falls behind on payments, it’s likely that they at some point would be contacted by a real estate investor.  Someone familiar with negotiating short sales.  A short sale is the selling of a property for less than what is currently owed on the mortgage.  Often banks will choose to accept less than a full payoff to avoid a long and costly foreclosure process.

Now that the days of liberal lending are virtually over, FHA loans are making a strong comeback.  Already this year, the number of FHA loans has skyrocketed.  And Actually, in an attempt to bolster the housing sector, HUD has recently increased their maximum loan limits considerably.

Nonetheless, more FHA loans means more FHA foreclosures or HUD Homes.

New HUD Homes come out every Friday morning.  You can search Utah listings by city here. 

Click Here for more information about any particular listing, the bidding process, or to schedule a preview appointment.

* Down Payment Assistance Programs Die a Sudden Death

Published October 2, 2008 * Buying , * Mortgage & Loans 2 Comments
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Nathan and Trisha are one of the last couples to purchase a home using the “Nehemiah Program“.  A non-profit organization that “gifts” buyers down payment money.  Sound too good to be true?  It is now. 

Recently the federal government passed the Housing and Economic Recovery Act, a new law which prohibits third parties from assisting homebuyers with down payment funds.  Officially in effect as of October 1st, 2008 the new legislation will undoubtedly have a major impact on Utah home sales, particularly in housing markets under $350,000.

Many believe that down payment assistance programs (DPAs) are a major contributer to the current housing crisis.  They argue that buyers who have no “skin” in the transaction are more likely to walk away from a mortgage when times get tough.  Ultimately resulting in a higher number of foreclosures.

Others however insist that DPAs create homeownership opportunities for working class, lower income and female head of household families that wouldn’t otherwise be able to buy.

Nathan and Trisha contacted me just over a month ago and asked if I could help them find a home, and quick.  I recall the eagerness in Nathan’s voice, “I’m already pre-qualified, but I’ve got to find a home ASAP and close by September 30th, can you help”

We did our homework, looked at a few houses and in just a couple of days we found exactly what he wanted.  Luckily, the seller was just as eager to sell and agreed to participate in the Nehemiah program.  However, it was not over yet. 

In fact, several issues arose after putting the ranch style home in Roy in escrow.  Starting with the inspection and then the appraisal.  First, the inspection highlighted a couple of issues that if not corrected, would kill the deal.  Once brought to the attention of the seller however, he willingly agreed to make the repairs. 

Next, there was the problem with the appraisal.  Despite the fact that the home had appraised much higher earlier this year, the appraisal came in $5,000 short!  And naturally, the bank will not lend more than the home is worth.

By this time it was too late to try and find my buyers another home and close by September 30th.  If we didn’t make this work, Nathan and Trisha would possibly have to wait another year or two so they could save up the money they would need for a down payment.

Ultimately, everyone came together for a solution.  The seller, the seller’s agent, the lender, the buyers and myself.  Between all of us, we were able to make up the differnce so that everyone could benefit in the end.

The last hurdle would be meeting all of the lenders conditions in time to close.  This in most cases would be the easy part, except in this case.  Due to the fact that September 30th @ 5:00 was the deadline for all DPAs, the lender was bombarded with loans.  It would take 3 times as long to get final approval because they were swamped with loans that needed to close by the end of the month.

Well, after a hair greying 3 days before the deadline, we barely closed in time.  Now, Nathan and Trish are ecstatic to have their own piece of American Pie.  They plan on living in their new home for quite a few years to come and feel very fortunate that they were able to buy a home at a time when so many people are losing theirs.

As for new buyers entering the market with little or no money to put down, the options have now dwindled.  There are still however City Grants and Federal Housing programs that may assist in buying a home, particularly for first time home-buyers.

If you would like more information on these types of programs, send a request here.

* Seller Financing Alternatives Sure to Gain Popularity as Lenders Tighten Up

Published September 28, 2008 * Buying , * Mortgage & Loans Leave a Comment
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All eyes are on Washington as they finalize a plan to bail out Wall St. this weekend.  And we may stave off an economic apocolypse in the short term, but our troubles are still far from over.

Unemployment is projected to rise significantly, the dollar is losing value, and analysts predict that foreclosure filings won’t hit thier peak until sometime late next year.

Banks may gain some breathing room after the bailout, but new credit for consumers will undoubtedly come with even stricter conditions.  Especially as it relates to real estate.  Lenders have already tightened up their definitions of “good credit”, they’ve significantly increased down payment requirements, and many have gone as far as redlining specific areas based on market performance.

As I mentioned in an earlier post, government intervention is the first real start in the housing recovery.  However, expect the journey to be lengthy and sluggish.  Currently, home sales are down substantially in most areas of Northern Utah.  This is not however due to a lack of desire to buy.  Instead, its the product of skepticism, fear of the unknown, and the inability to qualify.  Not to mention the fact that home prices are not completely in line with income in our state.  But that’s a topic for another post.

So if Utahn’s still want to buy and sellers really want to sell, they’ll find a way.  Much like they did in the midst of a rocky economy in the 1980s when interest rates rose to a mind-blowing 15%. 

One alternative to a conventional loan is Seller Financing

In brief, seller financing is where the seller agrees to act as the bank for the buyer.  Typically, a down payment is required and the balance of the purchase price is then amortized at an agreed upon interest rate for 15-30 years.  In most cases, the seller will require a “balloon payment”, a deadline by which the loan must be paid in full. 

In 1984 my parents relocated to Brigham City, Utah after my dad got a job transfer.  Interest rates were declining, but 12.5% was still very steep.  After previewing several homes with their real estate agent, they came accross one where the seller was offering to “seller finance” at only 11% interest.  They would have to put down 10% and agree to a “balloon payment” that matured in 5 years.  Ecstatic about the home’s location, amenities and rediculously low interest rate, they rushed back to the Realtor’s office and sent the seller a full price offer of $65,000.  Just after 4 years, my parents refinanced their home, the new loan paid off the seller and they got a new interest rate of 9%.  They still live in the same home today and it’s valued at about $140,000.

This method of buying or selling a home can be a good solution to both the buyer and the seller.  Nonetheless, as with any contract it should be drawn up by an attorney or real estate agent and all the details should be fully understood by the parties involved.

Already this year we’ve seen a notable jump in these types of transactions.  And as our market braces for a turbulant ride, creative financing will predictably make a comeback.

* Lenders way too gun-shy

Published April 21, 2008 * Mortgage & Loans 2 Comments
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Ok, it’s to the point where it’s rediculous now.  This is the second time in 1 week that a buyer has walked because of lenders over-cautious & tedious practices.  And I can’t say I blame them.  Both buyers have credit scores over 720, they’ve been at their jobs for more than 2 years.  Their debt to income ratios are in line…so what’s the problem?

The first buyer last week finally called it quits when the lender came back for the 5th time requesting more conditions be met.  OK, once is normal, twice is acceptable, 3 times is really pushing it. And finally, on the fifth time my buyers just said “If they don’t want to give us the loan, why don’t they just say so.  We’re done.”

So I understand that conventional lenders are really trying to cover their butts right now.  Especially after the bath they’ve taken on all of these subprime loans over the last 12 months.  But c’mon guys…when you’ve got an ‘A’ file on your desk, approve it!  There’s a big difference between this type of customer and someone with marginal credit, no money down, and questionable abilities to pay.

If these lenders don’t stop hesitating to pull the trigger on good loans, we’ll only continue to see home prices fall and experience the economy gain momentum on the roller coaster to recession.  Unfortunately, these lenders have gone from one extreme (lending to anyone with a pulse) to another, and they’ve got to get their stuff together quick!

Ok, that’s my rant for the week. 

* Will FHA save the Day?

Published April 9, 2008 * Mortgage & Loans Leave a Comment
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FHA Super Hero

There’s no question that the number of FHA loans has skyrocketed since the subprime market fell to its knees late last summer.  Actually, up until 5 or 6 months ago FHA loans seemed almost non-existent in comparison to its “100% no-money-down; bad credit, no problem” alternative.  Interesting though, considering that FHA has always maintained relatively liberal lending requirements.  The main differences between the two types of loans were the strict property condition requirements imposed by FHA and the liberal “stated income, stated assets” programs offered by conventional lenders.  Both however provided options for buying a home with little to no money down.  And now, the most important difference between the two…one is booming while the other is virtually extinct.

FHA is responding favorably to the market shift, restructuring guidelines and extending loan limits by large margins.  The question is will it be enough to make up for the subprime meltdown?  Well, while it may not be like David’s sling shot in his fight with Goliath, I’d hate to think how it might be if FHA wasn’t in the picture.

One thing is for sure, buyers are qualifying and they’re closing on homes.  I know this first hand as about 70% of the offers I’m now seeing come in on my listings are from buyers presenting FHA contingent offers.  Typically these offers require passing a physical inspection by an FHA approved appraiser, in addition to a termite inspection and roof certification.  Not quite the ring of fire people have made it out to be.  Time will tell, but who knows, maybe FHA will save the day.

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