Perception versus Reality

Quick note- full article on this topic coming sometime soon.

I just needed to vent on this particular topic.

A 5% down ‘conventional’ loan, which carries Private Mortgage Insurance (PMI), is no easier to get than 3.5% down FHA loan, which caries Mortgage Insurance (MI).

I’m getting a little sick of Realtors suggesting to their sellers that they should not take FHA offers seriously.  In some rare cases, like a condo project not being able to obtain FHA financing, a low money down conventional loan with PMI might be a good fix.  However, on a High Balance Conforming loan (loan amounts between $417,001 – $729,570) , FHA rates are slightly better than conventional pricing with PMI and may be the only product available.

Furthermore, FHA underwriters generally approve the loan and the mortgage insurance simultaneously without any need for further review or underwriting.  On a low money down ‘conventional’ loan with PMI, there are two levels of underwriting… the loan underwriter, and then again with the PMI company.  This extra level of scrutiny can delay the close of escrow and in some instances even kill a deal at the 11th hour.

There are some cost saving components that accompany a conventional loan versus an FHA loan; however, sellers and listing agents should not be avoiding FHA offers form qualified buyers.

As Always, if you have questions, please email me at TrustYourLender@gmail.com

What is your house worth?

Every-time I do a refinance I have to ask the following question of my client – What is your house worth?

Zillow.com, the opinion of a local Realtor, the fact that the next-door neighbor just sold their house for ‘X’… all of this means nothing once I ask this question.  Every homeowner thinks their house is the ‘best on the block’, is ‘special’ in some particular way, or is worth more than other homes in their neighborhood.

I can’t tell you how many times I’ve heard some variation of the following statement:  “how much is my house worth, well, that’s a good question.  A similar house around the corner just sold for $500K, but I’m sure mine is worth at least $600K”.

At the end of the day, every house is special.  Every home is ‘better’ or ‘more valuable’ than the one around the corner… to the actual home owner.  A home is a special place.  Homeowners have every right to feel like their home is more valuable than their neighbor’s.

Unfortunately, to an appraiser, determining the value of a given property is a fairly simple math equation.  An appraiser is generally going to evaluate the prices of recent sales within 1 mile of the subject property that have sold in the last 30 days – 4 months.

Is a pool valuable?  Yes.  Will is increase the value of ‘Property A’ over the value of ‘Property B’ by $50,000?  No.

Is a great sense of style, a clean house, and great interior decor going to influence an appraisers opinion?  Probably.  Will it increase the intrinsic value of the property by $50,000?  Probably not.

So what I have started to do is rephrase the question.  My new question to my clients are “What are properties in your neighborhood selling for?”

This is my attempt to separate the emotional value of a home from the actual value of the property.   If you are a lender or Realtor, you might want to approach this conversation in the same way.

As always, please don’t hesitate to contact me with questions at TrustYourLender@gmail.com

It’s a global economy we live in

Colonel Gaddafi’s crazy exploits, civil unrest in Libya, and demonstrations in the middle east do affect us all.

Here is my overly simplified explanation of how this works.  Gaddafi goes crazy and has his troops starts attacking peaceful protestors, commodity traders freak out and send the price of oil through the roof, fear of rising costs to do business – due to oil, causes the stock market to slump, money moves out of the stock market and floods into treasuries, this causes mortgage rates to go down.

It’s a crazy inter-connected global-economy we are living in.

Yesterday the 30 year mortgage rate dipped to it’s lowest point of 2011 and I was able to lock in a few clients at a great rate.

One of my friends whom I am doing a loan for even expressed some feelings of guilt.  He is informed enough to realize it’s the turmoil in the middle-east that is driving down mortgage rates here in the US. 

As always, if you have questions, please don’t hesitate to contact me at TrustYourLender@gmail.com

Cash-out refinances

With Southern California being one of the countries hot spots for foreclosures, REOs and short sales, property investors are finding that having cash to buy properties without a loan can work in their favor.

The ability to buy a property all cash may create opportunities for buyers due to the following:

• Cash offers allow for a quicker escrow period which may help truly distressed homeowners get out of their bad financial situation faster

• Cash deals allow for buyers to purchase a property which may be in such disrepair that a bank won’t lend on it

• With no loan contingency, sellers may be more willing to accept a lower offer price

• All cash deals tend to be a more smooth transaction and may get priority over other types of offers

As a result of these benefits, property investors have been adopting the following strategy for acquiring properties: buy the property all cash in order to get the lowest possible price, immediately ‘flip’ the property -OR- do a cash-0ut refinance to recoup their cash investment, move on to the next purchase.

Unfortunately for investors, recent guideline changes by Fannie Mae, Freddie Mac and the FHA have curbed this type of activity.

If your plan is to buy an investment property (or primary residence) all cash, then do a cash-out refinance to replenish some of the monies used for the purchase, you will have to wait at least 6 months before completing the refinance.

If you have questions, please contact me at TrustYourLender@gmail.com

Flip transactions are hard to handle

There is all kinds of confusion in the real-estate market concerning “flip transactions”.

Generally speaking a “flip” is a transaction where a private investor or property speculator has purchased a property at a discounted rate.  The discount may have come from the fact the property was distressed, damaged, or simply under-valued by the institution or Realtor who sold it.  The investor will generally do some structural and/or cosmetic repairs and then attempt to resell the property in order to make a profit.

Unfortunately, a slew of new and existing guidelines from Fannie Mae and the FHA, expanded underwriting criteria which varies from bank to bank, and additional risk over-lays used by loan brokers are causing for a confusing set of rules.  Investors who want to “flip” properties, and those consumers who want buy them, can become easily confused about what type of financing is available on these transactions.

Consumers, Realtors, and even some lenders are confused and angered about the specifics on how to underwrite a loan on a property which has been flipped.

Some banks follow the FHA guidelines to the letter and only scrutinize properties which have been flipped within the last 90 days.  Other lenders are expanding this extra level of scrutiny and review to any property where the property has been sold, OR title to the property has been transferred in the last 12 months.

Here is the bottom line- if you are trying to buy, sell, or refinance a property which has been previously sold in the last 12 month, you are going to run into delays, additional underwriting requirements, and maybe a loan denial.

If attempting to get a loan on a flipped property, here are a few of the problems that may be encountered during the transaction:

- Lender simply refusing to do the deal

-Lender requiring 2 appraisals – one of which may have to be paid for by the seller

-Additional down payment requirements

-Lender requiring proof of upgrades, repairs, or money spent by the seller to increase the value of the property

Here are a few things Realtors and clients can do to help clear up the confusion early and help to avoid potential delays on flip transactions:

-Inform your lender immediately if the offer you are writing is on a house which has been sold in the last year

-Try at all costs to avoid writing a purchase contract within 90 days of the most recent title transfer on a property

-Get a copy of the preliminary title report to your lender as soon as possible

-Require the listing agent to be at the appraisal on any flipped properties in order to answer questions about upgrades

-Be mentally prepared for delays OR request a longer escrow period

It is important to keep in mind that guidelines change frequently.  As the number of flip transactions increase in your area, be sure you are working with a well-informed and trusted lender.

As always, if you have questions, don’t hesitate to contact me at TrustYourLender@gmail.com