Category Archives: Financing

Real Estate Related Financing Articles

Finally Some Good News for the Condo Market

The demographics and financing policies of the past were stacked against the condo market. The demographics have changed with baby boomers retiring and downsizing and with millennials becoming first time home buyers, while still wanting the walk-able community life of their former apartments. Now the government in a fleeting and surprising moment of bipartisanship have helped to boost the condo market.

In years past the FHA had been a major player in condo financing. However, they have very strict guidelines for FHA approval of these condos. Over time the approved condos have dwindled to 14,000 of the 152,000 condo associations in the U.S. Every two years condo associations had to jump through hoops in the complicated process of FHA re-certification. Many associations just threw in the towel and decided not to play the game anymore.

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Along comes bill H.R. 3700 which should correct many of the key problems of the FHA certification process. The bill allows condo associations to have a 35% owner-occupancy ratio, down from the previous 50% benchmark. This is especially helpful as the housing bubble caused many condos to be underwater and many instead of taking a loss or going through a short sale elected to rent their condo, thus causing higher owner-investor ratios.

In many communities it makes good financial sense for the condo building to rent out space to commercial tenants. Not only does it give a good revenue stream, but also puts amenities within seconds of the residents. Previously FHA considered much of this commercial component excessive, but with the new bill they can judge on a case by case basis and allow for more commercial use.

The new law also prompts the FHA to streamline the now complicated certification process. This will very much help persuade condo associations to certify or re-certify.

Condo associations often charge a small transfer fee when new units are sold, which are spent to benefit all residents. These once disallowed fees to qualify for FHA financing will now be allowed.

It may take some time for FHA to put these updated procedures into use. Consequently, for condo associations to get back on board and become certified. Out comes the crystal ball, I do strongly feel that with time the condo market will see greater appreciation in prices and lower relative average interest rates once these changes get rolling.

Ask, comment, complain, share, etc. Always open and welcome to all interactions, whether through this public forum or one on one. Call or text to 301-221-4760 or email me at IGreathead@Outlook.com. Look forward to hearing from you.

Securing a Home Mortgage: A Crash Course

Incredible amounts of time, money and research go into the home buying process. Most of this time is focused on the finding, researching, and inspecting the actual real estate asset. While this is very important and frankly how I spend most of each day assisting my clients, time needs to be also spent on the financing of this investment.

The basics of the process are finding a lender, locking in a great rate, and deciding what amount you are comfortable financing that yields a monthly payment that is right for you. If you are now or in the future will be buying a home please take a moment to read and integrate some of these suggestions and tips into your financing formula.

So how does one find a lender? Well asking your real estate agent for some good names is a great start. Your agent works for you and how the lenders that he refers performs is a reflection on him/her and your future business and referrals are dependent on him/her doing a great job for you. Thus, an experienced agent has been through the process with many different lenders and has narrowed their list down to the ones that are hardworking, honest, go the extra mile, have good rates, have good products, are kind, and who may fit for different clients and circumstances. Make sure to ask your agent for a couple of names and call a couple to see which one has a personality that works with you and also to get a couple of quotes on rates and products. Do not get quotes from many lenders as each time they pull your credit it is called a ‘hard pull’ and too many can cause your credit score to go down.

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Often big banks are not the best way to go for many people. Local banks or regional or national mortgage brokers that are independent of a bank can often give you more one on one attention, meet with you in person, know your local market, be more creative with their offerings, and move more quickly when there is a bump in the road or something out of ordinary. This can be especially true with people that are recently self-employed, people that have recently started to rent out an asset that was formerly a personal expense, etc. Besides, often the smaller lenders will be selling your loan to a large bank soon after closing, so you will likely be paying your mortgage to a large bank and have the large bank level of telephonic customer service soon after closing.

Rates change daily, sometimes more than once a day! Start watching rates early and often. There are a good number of lenders that offer programs where you can lock in the rate now and if the rate goes down at all or by a certain amount you can float the rate down to the lower rate at least once. But you have the protection that if the rates go up you are not stuck with the higher rate. A small increase in the rate can mean tens to hundreds more a month, which over 30 years can be a substantial cost.

Be a hawk about your credit score! One late payment on a credit card can stay on your credit report for 7 years and drop your FICO score by 60 to 110 points. Also try not to open a new credit card or increase your balance at least 6 months before applying for a mortgage if it can be avoided.

Other things to do when you are getting ready to get a mortgage are: keep originals or have access to all of your bank statements, pay-tubs, tax returns and other important financial documents; provide your Earnest Money Deposit from your own personal bank account or acceptable gift funds; and decide early to either file taxes or file an extension and do either early so that it is registered with the tax authorities (for rental income and self-employment income the banks will want to see it through taxes, especially if you don’t have at least a two year history).

There are other things you should avoid doing during the process: change jobs/employer before asking if it will impact your loan; deposit monies outside of your payroll deposits (especially cash or personal property sale) as they will often require substantial documentation as to it’s source; don’t make major purchases before or while under contract (ie new car, furniture, appliances); change your legal name; take substantial vacation or unpaid time off before closing.

I highly advise talking with a real estate agent about your particular circumstances and having them in your corner during the process. They can be your advocate with any lenders you choose and help to make sure that the process goes smoothly and that you get the best deal you can. I am available to anyone that has any questions, needs, concerns, etc. about this subject and other real estate related subject. Happy mortgage hunting!

FHA Mortgage Waiver for Short-Term Renovation Investors Soon to End

In response to the mortgage crisis and recession, investors that were interested in rehabilitating a home quickly, under 90 days, using federally-insured low-down-payment mortgage money were granted a waiver to do so. Prior to this waiver, investors interested in using FHA loans to fix-up and sell a house had to wait 90 days until they could sell the house. Under the waiver the investor could fix it as quickly as they wanted and sell it to a new buyer at a higher price using FHA financing. The waiver will come to an end on December 31, 2014.

The waiver has allowed for approximately 102,000 homes to be sold within this shortened time frame. The waiver has allowed the housing turn-around to happen at an accelerated pace, affording for lower turn around costs and thus better access to moderate income buyers.

The anti-quick flip rules were put into place due to fraud and abuse in the FHA system. In the 1990s, FHA saw teams of scam artists that would buy a house in disrepair, slap some cosmetic fixes onto it, get a false appraisal done, and advertise that much more was new or updated than actually was. Buyers then were paying more for these homes than they were actually worth.

Unfortunately, it is a double edged sword. While the anti-flipping restrictions can lower the likelihood of predatory investors, it also causes undue extra expenses to incur that are passed onto the moderate income buyers and in-turn can price homes out of their reach. An experience and qualified investor can often properly rehab a home within 30-60 days. The excess time to hold, pay for, insure, etc. is an unneeded extra expense and ties up the investment capital needed to do more rehabs in a given time period.

With FHA endorsed loans projected to be about 565,000 this year down from a normal year of between 800,000 – 850,000, a more than 30% decrease, there is a lot of pressure on the entry level market. There must be a happy medium. A shorter time frame, 45-75 days would be an option, with more emphasis on regulatory and punitive policies to find and punish the con-artist and their associates.

If you have been victim to this, have ideas about how to remedy the situation, further information, or anything else to add, please leave a comment.

Validated Monthly Recurring Income: Do You Have Enough?

In this age of computer-driven underwriting, even the countries wealthiest are sometimes getting rejection letters for financing or refinancing real estate. Most notably, recently former Federal Reserve Chairman Ben S. Bernanke’s refinance rejection. Likely caused by his recent disruption in steady regular employment income due to retirement. Since his Fed retirement he has made over $250,000 and has lucrative ventures on the horizon, Brookings Institution fellow and a book contract.

Borrowers beware. Lenders are scrutinizing “validated income” with a new vigor. Especially important to the retired individuals and the self-employed, borrowers with good sums of liquid assets, high credit scores can be turned away for insufficient regular cash flow to meet debt to income ratios.

Lenders are looking for consistent, often at least monthly, draw downs of retirement accounts that they can project to continue for at least three years. This continued, consistent and regular draw down should occur ideally before a loan application.

If you are in a similar situation, please contact me and we can sit down and look at what your projected debt to loan ratio may be and plan ahead as to how to prepare your finances for an upcoming financing event. We will also work with skilled lenders of your choice to explore your options. This could be an upcoming situation for a parent, sibling, etc. with social security income, rental income, occasional retirement draw downs, etc. So please share this information with all that you know and love that may be affected.

If you have a similar story or situation and want to share, please post a comment.