Another government shutdown article – what home buyers and sellers should know

Yes, another column about the federal government shutdown (like you need to read another column about the shutdown, right?). Although it is expected that the majority of home purchases won’t be affected by the shutdown, home buyers and sellers should be on their toes to avoid possible pitfalls; buyers and sellers should be aware of what could affect their purchase/sale. And even if both houses of Congress agree to some continuing resolution before publication, the shutdown information could be useful during the next budget battle (which is likely to occur in about two weeks).

Many experts agree that the government shutdown won’t last long. Regardless, there is a consensus that the longer the shutdown continues, the potential increases to impair the housing market. Additionally, some experts expect the shutdown to dovetail into an anticipated bitter debt ceiling battle later this month.

It has been widely acknowledged that the recovering housing market has been a major contributor to the 2% GDP growth. Economists have agreed that it would be logical to maintain government functions that compliment and support the still fragile housing recovery.

However, regardless of what you hear; the shutdown will certainly affect the housing market. Some mortgage originations and closings will be affected, and some buyer activity may be put on hold until the government shutdown ends (like the sequester). Although there appears to be a commitment to maintain FHA and VA loan operations during shutdown, new loan processing may experience delays (Federal department shutdown contingency plans can be viewed on Whitehouse.gov).

FHA’s (Department of Housing and Urban Development) contingency plan states that: “The Office of Single Family Housing will endorse new loans under current multi-year appropriation authority in order to support the health and stability of the U.S. mortgage market. (FHA endorsements currently represent 15% of the market.) Approximately 80% of FHA loans are endorsed by lenders with delegated authority. The remaining 20% are endorsed through the FHA Homeownership Centers, leveraging FHA staff with a contractor that works on-site.”

The VA’s (Department of Veteran Affairs) contingency plan states that during 1995-96 government shutdown, “Loan Guaranty certificates of eligibility and certificates of reasonable value were delayed.” However, learning from that experience, the shutdown contingency plans indicate that there will be 95% of employees who are either fully funded or required to perform “excepted” functions.

Conventional loans should be unaffected as Fannie Mae and Freddie Mac operations continue through the shutdown; Fannie and Freddie operations depend on lender paid fees.

Unlike shutdowns in the past (the last Federal shutdown was 1995-96), approximately 90% of all current mortgages in the country are insured, guaranteed, and/or purchased by federal entities. During the last shutdown, a thriving private sector mortgage industry existed; private investor groups that purchased mortgages on the secondary market, as well as many portfolio lenders (lenders that keep and service loans they originate) offered alternatives to home buyers. During the last shutdown, home buyers who were unable to obtain or wait for government loan approval, had other options for financing that included “Alt-A” and sub-prime mortgage programs that seem to not widely exist today.

If you are planning to settle on a home in the next few days, confirm with your lender that there are no delays. If you are in the process of looking for a home, check with your loan officer about a reasonable closing date before you enter into a sales contract.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

By Dan Krell
Copyright © 2013

September 26, 2013July 1, 2019

Are rising interest rates helpful?

After much speculation, mortgage interest rates appear to be on the move. Even with rising interest rates, rates are still relatively low. Some economists expect that when the Fed’s Quantitative Easing program begins tapering, mortgage interest rates may jump due to financial market volatility.

Many fear that rising interest rates could derail the recovering housing market. In an August 19th news release (realtor.org), Chief NAR economist Lawrence Yun stated that although the pace of home sales are at its highest since February 2007, the market could be experiencing a “temporary peak” due to home buyers’ seeking to close deals before interest rates rise significantly. Looking ahead, Dr. Yun expects that rising interest rates and limited inventory could create an imbalanced market due to inconsistent home sales.

Home sale prices also have been rising, prompting bidding wars, as the median home sale price was reported by NAR to have maintained nine consecutive months of double digit year over year increases. However, Dr. Yun stated, “Limited inventory in some areas means multiple bidding remains a factor; 17 percent of all homes sold above the asking price in August, although 63 percent sold below list price.”

This week’s release of July’s S&P/Case-Shiller Home Price Index (spindices.com) also revealed that home sale prices were still holding onto the double digit annual rate of gain over 2012 levels, as the 10 city and 20 city composites posted about a 12% year over year increase for July. However, it is pointed out that home price are still “far below their peak levels.”

The sharp increases in home sale prices sparked fears of another housing bubble. But price gains only increased about 2% from June to July. Monthly price gains have lessened, and the gradual slowdown of home price gains may indicate that home prices may be peaking. Chairman of the Index Committee at S&P Dow Jones Indices, David M. Blitzer, stated, “Following the increase in mortgage rates beginning last May, applications for mortgages have dropped, suggesting that rising interest rates are affecting housing. The Fed’s announcement last week that QE3 bond buying will continue for the time being may have only a limited, though favorable, impact on housing.”

The rapid increase in home prices has affected potential appreciation for many home owners who waited to sell their homes. And the increased inventory provided additional housing stock for eager home buyers. Given the recent increases in home sale prices, the expectation of an uncertain real estate market may not be welcome news by home buyers and sellers.

But home price increases have not only helped the housing market, but the economy as a whole. CoreLogic (corelogic.com) reported that the housing sector contributed about 17% to GDP growth during the first quarter of 2013. However, CoreLogic predicts that increasing mortgage rates will directly affect the housing market, and indirectly affect the overall economy: Single family housing starts (new homes) are thought to be declining because of increasing mortgage rates; and CoreLogic estimates that long term GDP growth to be about 1.75%.

It remains to be seen if modest increases in mortgage interest rates have been beneficial to stave off another housing bubble. However, given that the indicators and experts point to a housing recovery peak; increasing mortgage interest rates could suggest caution for the housing market.

Original located at https://dankrell.com/blog/2013/09/26/rising-interest-rates-a-help-and-hindrance-to-recovering-housing-market-2/

By Dan Krell
Copyright © 2013

March 21, 2013June 29, 2019

Renovate your home with FHA 203k

If you’re like many home buyers, you’re probably looking for a home that is “turnkey” or an updated home that is ready to move right in. However, since inventory is tight, competition can get intense. But rather than passing on the “diamond in the rough,” consider the FHA 203k.

The FHA 203k is HUD’s rehabilitation loan. The “203k” actually refers to the section within the National Housing Act that provides HUD with the ability “…to promote and facilitate the restoration and preservation of the Nation’s existing housing stock;” in other words provide mortgages to renovate and rehabilitate existing homes. Although the program is not allowed to provide for “luxury” upgrades (such as hot tubs), the program may be used “…to finance such items as painting, room additions, decks and other items…”

If you’re purchasing a home that is not a total rehab project, there is a streamlined version of the program that can assist you to purchase the home and provide additional funds (up to $35,000) for improvements and upgrades. The FHA 203k-streamline is a “limited loan program” designed to provide quicker access to funds so your home move-in ready relatively quickly.

The “203k” process is relatively straight forward. After identifying a home, you should consult your 203k lender and consultant about the feasibility of a FHA 203k. A project proposal is prepared detailing a cost estimate for each repair/improvement. During loan underwriting, the appraisal is completed to determine the value of the home after the proposed repairs/improvements are completed. If the mortgage is approved, the home is purchased with the loan and the remaining funds are placed in escrow to pay for the project.

Much like a typical mortgage, you must qualify for the program by meeting underwriting standards for borrowers. However, unlike the typical mortgage, additional underwriting requirements include review of architectural plans and repair estimates (materials and labor) from licensed contractors. HUD approved consultants/inspectors examine and evaluate the project’s progress to ensure work is completed and compliant with HUD standards. Funds for the repairs/renovations are released in draws to ensure the work is completed as intended as well as meeting all zoning, health and building codes.

Of course, the home must also meet eligibility guidelines. The home: must be one to four units; must be at least one year old; and must meet neighborhood zoning requirements. The program allows for major rehabilitation on homes that have been razed provided that the foundation still exists.

But what if you’ve decided to renovate your home rather than move? The FHA 203k allows for home owners to make renovations, updates, and sometimes additions. The possibilities seem endless (as long as your vision stays within the loan limits). Besides painting and updating kitchen and bathrooms, you could possibly even expand your existing house with an addition. The FHA 203k even allows for many “green” upgrades to make your home more efficient.

FHA guidelines have been revised in recent years, and may undergo further revisions. It is important for home buyers and others who are interested in the FHA 203k to consult with an approved FHA lender for borrower and home qualifying guidelines, loan limits and 203k acceptable improvements. Additional information (including a list of lenders) can be found on the HUD website (HUD.gov).

Original published at https://dankrell.com/blog/2008/09/19/fha-203k-renovation-loans-are-still-available/

By Dan Krell

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws. Copyright © Dan Krell.

January 3, 2013December 2, 2020

Bold predictions for real estate and housing

by Dan Krell
DanKrell.com
© 2012

We survived the “Mayan Apocalypse” of 2012, so what’s in store for the housing market and the real estate industry in 2013?

The “Long Slog:” Although analysts disagree about the date of the housing market bottom, most agree that the national housing market bottomed out sometime time in 2009-2010. Many looked forward toward 2012 to be a phenomenal year for housing and a return to normalcy. Certainly 2012 housing figures were better than those of 2011, but in many areas of the country (including locally), the market fell short of outperforming 2010.

Unlike the occasional Pollyanna story about the local housing market, analysts expect “the long slog” or “the long grind” that will take years (emphasis on the plural) to get back to normalcy. No matter how you articulate it, and barring future economic setbacks, experts describe the climb out from the bottom as a long, slow trudge that will have high and low points along the journey.

Home sale prices: When real estate fell into a seemingly endless downward spiral in 2008, some sectors continued to do well. Homes priced at and above one million dollars continued to outperform other sectors of the housing market through 2011. The “upper bracket” sector began to show weaknesses in the early part of 2012; as luxury home sales slowed, mid-range home sales picked up momentum. However, activity flipped toward the end of 2012; as upper bracket activity increased significantly, while activity in other price sectors decreased. Until fiscal cliff, debt ceiling, and other government budget debates are resolved; local upper bracket home sales will be inconsistent during 2013. This market bifurcation can skew local monthly average home sales figures, as well as possibly distorting monthly marketplace snapshots.

Hyper-local real estate: Regional and local variances in home sale prices will require home buyers and sellers to continue to focus on hyper-local data to determine selling prices. One of the best ways for you to clarify neighborhood sales trends is to consult a local real estate agent for recent neighborhood comparables.

Mortgages & Appraisals: Getting a mortgage may become be increasing difficult in 2013. Recent reports of FHA losses and a possible bailout could force new guideline changes to help the venerable mortgage program. Because of increased foreclosures and delinquencies, there is talk about FHA becoming increasingly credit score reliant, and increasing mortgage insurance premiums for riskier borrowers.

Appraisals will continue to be a lightening rod of criticism and a source frustration. Since its inception, the Home Valuation Code of Conduct was confusing to everyone, and eventually became a scapegoat for many seemingly inconsistent valuations. However, a low sales volume due to lack of resale inventory will also create issues with appraisals.

Pent-up demand: No need to worry about interest rates – yet. Keeping mortgage interest rates low, the Federal Reserve has commented on continued purchases of mortgage backed securities as part of a larger stimulus program. However, continued low mortgage interest rates may not be the reason for home buyer activity as much as pent up demand. However, home buyers waiting on the sidelines to purchase a home have been met with low resale inventories during 2012. For many home owners, the general lack of home equity remains the major reason to not sell a home; and it’s also a reason for low resale inventories to continue through 2013. Continued low inventory environment will create a competitive environment for home buyers.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

March 8, 2012March 12, 2012

Buying a home when you’re short on cash

by Dan Krell ©2012
DanKrell.com

Given how the lending industry has changed, it’s easy to understand that you might think you need perfect credit and a 20% down payment to buy a home. Although credit requirements have been tightened, buying a home with little or no money is still possible.

Yes, it’s true that the financial and housing crisis forced banks and mortgage lenders to re-think the idea of easy money. Sure minimum credit scores have been raised to qualify for a mortgage, and you better believe that increased underwriting scrutiny and due diligence is the rule (rather than the exception). But, that doesn’t mean that you can’t get a mortgage if you don’t have a lot of cash. Depending on your situation, you may find yourself comparing conventional loans to FHA and VA.

Conventional mortgages have been traditionally thought of as requiring a 20% down payment; however, you may obtain a conventional loan with as little as a 5% down payment. The misconception that a conventional mortgage requires such a high down payment may have stemmed from the fact that you need a 20% down payment to circumvent private mortgage insurance. Additional confusion about conventional mortgages arises from the distinct programs that Fannie Mae and Freddie Mac offer for specific home buyers. For example, Fannie Mae offers a mortgage for as little as a 3% down payment through their “HomePath” financing– but this is only available to purchase Fannie Mae owned foreclosures.

Conventional financing typically allows you to receive financial assistance in the form of a gift and/or seller closing cost assistance. The documented gift must be from a relative. Although gift guidelines for some conventional programs have recently become more lenient; generally, you may be required to have a “minimum borrower contribution” (from your own funds) as your down payment decreases. However, a minimum borrower contribution may not be required if your down payment is 20% or more. Seller closing cost assistance may be limited depending on your down payment.

As conventional mortgage credit requirements became increasingly strict, more home buyers found that the FHA mortgage remained somewhat flexible. Certainly, buyers with credit dings found that FHA underwriting is more forgiving (provided borrowers provide substantiating documentation) than conventional; but another attraction to FHA financing is the low down payment. Although FHA increased the required minimum down payment- you may find that the current 3.5% down payment is still relatively low. Not having the 3.5% down payment does not have to deter you either; your down payment can be from a documented gift of funds. If you’re still short of funds, FHA allows the seller to assist with your closing costs (not to 6% of the sale price).

If you’re an eligible veteran or active duty service personnel, you may find that the VA offers a very good mortgage. As a benefit to your service, you could buy a home with no down payment (provided the purchase price does not exceed the VA appraisal of reasonable value and loan limits). Additionally, the VA allows the seller to pay your lender’s fees. Eligibility and other information can be checked on the VA website (www.benefits.va.gov/homeloans/veteran.asp).

Even though mortgage options exist, program guidelines change frequently- so check with your lender about qualifying. One final word: be prepared to document everything and follow your lender’s instructions.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 5, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

by Dan Krell DanKrell.com © 2012

We survived the “Mayan Apocalypse” of 2012, so what’s in store for the housing market and the real estate industry in 2013?

by Dan Krell
DanKrell.com
© 2012