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/

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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.

March 13, 2013November 23, 2021

Pricing your home to sell 2013

by Dan Krell
Google+
DanKrell.com
© 2013

It has been a while since home sellers have felt optimism about the housing market. Although many would be home sellers continue to wait before jumping into the market; a combination of inventory shortages and reports of appreciating home prices are making some home sellers push the limits of home pricing.

Consideration for an appropriate list price is vital in any market. However, regardless of current market conditions, setting the right list price today could prove challenging. If your home sells quickly, you might feel as if you priced the home too low; while setting the price to high could make your home languish in an otherwise active real estate market.

Since the home seller decides on the list price, you might be tempted to use the most recent neighborhood sale or list price as a guide for your home sale. However, without deeply examining these comparables, this methodology may result in over or under pricing your home.

As public information is widely available on the internet, you might find yourself searching the ‘net for recent neighborhood sales to assist you in making a decision on a list/sale price. However, public records usually post dates of deed transfers as recorded in the courthouse, which are usually after the actual closing (sometimes several months or more). Additionally, public record home descriptions can sometimes contain incorrect or outdated data on home interiors and living area. Relying solely on data found on the internet could make you miss out on more recent and significant sale comps –again possibly leading you to under/over price your home.

For relevant comparables, ask your real estate agent to prepare a market analysis based on comps found in the local MLS (which contains real-time data). Although the market analysis is not an appraisal, its purpose is to assist home buyers and sellers in deciding on a list/sale price. An experienced agent preparing a market analysis will search for comparables that are most similar to your home by considering home factors such as: location, type, style, size, age, condition, interior amenities, exterior amenities, room count, basement, updates, etc.

Additionally, since the comparables used in the market analysis are as analogous to your home as possible, finding recent comps within your neighborhood are ideal not only because of the proximity to your home, but also because homes within the same subdivisions usually have many similarities (including age, style, lot size, upgrades, additions, as well as functional obsolescence).

Even though many home sellers are optimistic about home prices, you could still encounter appraisal issues. Appraisals are opinions of value by an independent party typically requested by lenders to verify the home’s market value in underwriting a home buyer’s mortgage application. And although appraisers use a standard methodology to derive a market value, some appraisers may exercise caution and seek the conservative value in ensuring the appraisal meets the loan guidelines. Issues can also arise when the assigned appraiser is unfamiliar with your neighborhood and surrounding area.

Pricing a home to sell has been described as a skill by some and an art form by others. Deciding on an appropriate list price not only establishes buyers’ expectations for an offer, it can also set the tone for a smooth sale or a bumpy protracted ride in the marketplace.

More news and articles on “the Blog”

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published the week of March 11, 2013. Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

March 6, 2013December 2, 2020

Is recent housing bubble news cause for alarm

by Dan Krell

DanKrell.com
© 2013

If I said that we could experience another housing bubble, you might be concerned for my mental health. But a couple of years ago I wrote about an impending housing shortage, which could spark another bubble similar to what occurred during 2004-2005. The market-conditions similarities between 2004 and today are foreboding, if not intriguing. (Dan Krell © 2013)

There hasn’t been talk of a housing shortage since 2004; but looking at Montgomery County MD as an example, you might begin to see similarities between the housing bubble of 2005-2006 and today’s real estate market.

Monthly peek single family inventory in Montgomery County did not exceed 2,000 total active units in 2004; while the absorption rate was reported by the Greater Capital Area Association of Realtors® (GCAAR.com) to be about 80% during the winter of 2004. During the following year, the winter active inventory greatly increased and the absorption rates dropped to about 40%. The result was a housing market that reached critical mass, and a one year appreciation rate of about 18% for Montgomery County single family homes; which played a key role in the rampant real estate speculation in 2005-2006.

Active housing inventory has been declining since 2010; the greatest decrease occurring during 2012. According to the monthly home sale statistics posted on the GCAAR website (GCAAR.com), there were 1813 active single family inventory units for sale in Montgomery County during January 2012. And although active single family units peaked for the year during the spring of 2012, active inventory dwindled to a low of 1198 active units for sale during January 2013 – a year over year decrease of about 40%. Additionally, the absorption rate of listed homes for sale is rapidly approaching 60%

Add the home price facet – on March 5^th, CoreLogic (corelogic.com) reported that national home prices increased 9.7% during January 2013, as compared to January 2012. This was reported to be the greatest year of year home price increase since 2006.

An additional and telling similarity between the pre-bubble years and present is the number of real estate investors jumping in to cash in on distressed properties. Of course at the height of the real estate bubble of 2004-2006, real estate investing was transformed from the traditional “rehab and flip” to no rehab and flipping properties as quickly as possible. A great number of homes sold today are to investors, either to rehab or to rent.

In 2004, like today, we were about three years post recession; albeit the recession of 2001 was not as protracted as the “Great Recession.” At that time, like today, the Federal Reserve funds rate was historically low.

Although an “easy money” monetary policy is another similarity between the periods, a major difference is the availability of mortgage money. Getting a mortgage is much more difficult today than it was in 2004-2005. Buying a home without a down payment as well as qualifying for a mortgage without documenting income could have been a factor of the wide spread real estate speculation of 2005-2006. Today, as a result of the bursting of the 2005-2006 housing bubble, underwriting qualifications are more demanding as are down payment requirements.

The housing bubble phenomenon is not a new or a recent experience; housing bubbles have occurred in the past and most likely will occur in the future. When they occur, housing bubbles seem to coincide with a recessionary cycle. And just like recessions, housing bubbles vary in duration and severity. Sure, another housing bubble may be looming; but the next bubble may be confined to specific regions of the country, and possibly some local neighborhoods.

More news and articles on “the Blog”

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.

February 28, 2013November 23, 2021

Real estate integrity on the internet

The internet is brimming with information. And although a lot of information is based in fact, there’s plenty that is not. People often fall prey to internet half-truths because information is often presented convincingly with conviction by websites claiming to be the authority. The internet can be such a quagmire that even some trusted and reliable media outlets have been fooled. How about real estate integrity?

Home buyers and sellers are increasingly depending on the internet for information to assist them in buying and selling real estate. Many real estate websites that are visited not only contain current homes listed for sale as syndicated by the local MLS; they may also post homes for sale by other sources that include homes for sale by owner, fake listings posted by desperate real estate agents, and advertisements from other websites. Unless you know what you’re looking for, you might never know the posting source or how long it has been posted on the site. Real estate integrity may be lacking.

The MLS syndication is usually updated to ensure accuracy, even if it’s not always timely. However, it’s the list of FSBO’s, sham listings, and advertisements that can be out of date and/or used to lure consumers to visit other sites. Some home buyers/sellers can be lured to occasionally spend money for bargain homes for sale and home sales information.

Sometimes, real estate integrity is intentionally substituted for salesmanship. Some real estate websites post advertisements as “teasers.” The teaser may show a home for sale at a great price, but could lead to another website that may charge for the full information about foreclosures or bargain homes. Once on these sites, some consumers misunderstand that all the homes listed are for sale. The reality is that although these sites provide a service of collecting and posting public information about homes that have foreclosure notices and other related information (and sometimes even list MLS listings for sale), not all the homes are for sale. In fact some of the homes listed as distressed properties may never be offered for sale as a foreclosure because the home owners resolve their issues without losing their home.

The internet continues to be a source of real estate related scams. Internet real estate scams continue to prey on susceptible home buyers and sellers, as new and sophisticated cons are devised. Scammers often post fake names and photos to present themselves as being local, when they are not.

Yes, many property websites have taken steps to maintain real estate integrity by monitoring postings, and allowing user feedback to flag problem listings; and some of the leading real estate websites strive to continually improve on the consumer experience. However, if you want up to date and accurate home listing and sales information, talk to a real estate agent. Your agent has access to the local MLS and can not only provide you with timely home listings and contract status; they can also provide you with an up to date home sales analysis.

Just because you found it on the internet, does not necessarily mean it’s accurate. Practice due diligence and check out the source. A lot of real estate related information posted on the internet can be verified through public records. Public information is often readily available on the ‘net, and can be found on public websites maintained by State and local jurisdictions. For more information on protecting yourself on the internet, visit the “scams and safety” link on the FBI website (FBI.gov).

Original located at https://dankrell.com/blog/2013/02/28/real-estate-and-the-internet-its-gotta-be-true/

By Dan Krell
Google+

February 21, 2013December 2, 2020

Sequestration will affect real estate and housing markets

by Dan Krell
DanKrell.com

(Dan Krell © 2013) Remember the “Fiscal Cliff?” Well, after a two month hiatus, sequestration concerns are again entering (if not intrusively) the minds of those who may be affected. And, if you remain indifferent on the matter, you might consider the local economic effect from looming government budget cuts that may begin on March 1st.

On February 14th, HUD Secretary Shaun Donovan provided written testimony to the “Hearing before the Senate Committee on Appropriations on The Impacts of Sequestration” (HUD.gov). Secretary Donovan outlined what he described as the “harmful effects of Sequestration” to not only at-risk populations, but families, communities, and the economy at large, as he concluded, “…Sequestration is just such a self-inflicted wound that would have devastating effects on our economy and on people across the nation.”

As a result, HUD counseling would be limited. According to Secretary Donovan, about 75,000 families would not be able to receive the critical counseling services that include pre-purchase counseling, and foreclosure prevention counseling. According to the Secretary: “…This counseling is crucial for middle class and other families who have been harmed by the housing crisis from which we are still recovering, and are trying to prevent foreclosure, refinance their mortgages, avoid housing scams, and find quality, affordable housing. Studies show that housing counseling plays a crucial role in those 3 efforts. Distressed households who receive counseling are more likely to avoid foreclosure, while families who receive counseling before they purchase a home are less likely to become delinquent on their mortgages.”

FHA has been the workhorse to stabilize the housing market as well as providing the means for affordable home purchases. Those directly affected by sequestration would be home buyers and home owners who are applying for FHA mortgages; as well as those seeking assistance through HAMP and HAFA. In written testimony, Secretary Donovan stated that “…furloughs or other personnel actions may well be required to comply with cuts mandated by sequestration.” As a result, “…The public will suffer as the agency is simply less able to provide information and services in a wide range of areas, such as FHA mortgage insurance and sale of FHA-owned properties.”

Another concern is the possibility of a sharp increase in interest rates. Up until now, home buyers (and those refinancing) have had the benefit of historically low mortgage interest rates. Low mortgage interest rates are one of the reasons why home affordability is also at historic levels. A sharp rise in interest rates combined with FHA mortgage delays could shock the housing and real estate market. The result could be housing activity similar to what we experienced immediately after the financial crisis. Granted, the shock would probably not be as prolonged as what occurred in 2008-2009, but nonetheless significant.

In a region that has been relatively unaffected by unemployment and economic issues due to a strong government workforce, sequestration could essentially put a damper on the local housing recovery. Home buyer activity has already been affected, as those who are concerned about sequestration have either put their home purchase plans on hold, or have changed their housing plans altogether. And of course, over time, the changes to consumer behavior would trickle down to various sectors of the economy.

But don’t worry, although sequestration is set to begin March 1st, budget cuts won’t occur all at once. Unless Congress acts on the matter, you might not immediately feel its effects.

by Dan Krell Google+ DanKrell.com © 2013

Since the home seller decides on the list price, you might be tempted to use the most recent neighborhood sale or list price as a guide for your home sale. However, without deeply examining these comparables, this methodology may result in over or under pricing your home.

Pricing a home to sell has been described as a skill by some and an art form by others. Deciding on an appropriate list price not only establishes buyers’ expectations for an offer, it can also set the tone for a smooth sale or a bumpy protracted ride in the marketplace.

by Dan Krell

by Dan Krell DanKrell.com

by Dan Krell
Google+
DanKrell.com
© 2013

by Dan Krell
DanKrell.com