Archive Page 2

Blocked FHA Mortgage Insurance Cut

by Steve Meyers

January 28th, 2017

The new Trump Administration halted the previously announced FHA mortgage insurance rate cut from 0.85% to 0.60%.  What does this all mean?  Let me give you a little historical perspective and then discuss the Pros and Cons.

One of the missions of the FHA (Federal Housing Authority) is to provide mortgage insurance on loans to low and moderate income families with modest credit scores, to allow them the opportunity to purchase homes.  These families can borrow up to 96.5% of a homes’ value and have a credit score of 580.  Mortgage loans greater than 80% of the purchase price require either FHA mortgage insurance or mortgage insurance from a private company like MGIC before they can be bundled and sold on the Capital Markets.

Following the housing bust in 2008, the FHA experienced an unexpected number of borrowers who went into default and they ultimately had to foreclose on their loans.  The FHA’s capital reserved of 2.0% of their entire portfolio, as required by congress, was severely diminished.  The Obama Administration raised the FHA’s mortgage interest rate 4 times since 2010 to increase the capital reserves back to its’ required 2.0%.  To help the Agency, the Federal Government had to infuse 1.7 billion dollars into the Agency in 2013.  That was the only time in the 79 year history of the FHA that Congress had to bail out the Agency.  In fiscal 2015, the FHA finally reached its’ required reserve of 2.0% of its’ portfolio.

In late 2016, the Obama Administration made the decision to reduce the current FHA mortgage interest rate from 0.85% to 0.60% to allow more low and moderate home buyers to purchase homes and, to reduce the monthly insurance payments for over 700,000 existing borrowers by 0.25% of their outstanding loan amounts.

So, what is the biggest advantage in halting the announced plan to reduce the mortgage interest rate?  Housing prices throughout the country are growing at historically higher rates than normal.  This cannot continue and there is sure to be a correction in the market.  If the FHA reduces their mortgage insurance rates and the bubble bursts again as it did in 2008, the FHA should increase its’ capital reserves today so Congress does not have to bail it out for its’ second time in a decade.

What are some of the disadvantages in halting the reduction of the mortgage interest rate?  As mentioned earlier, roughly 700,000 current home owners will not receive a reduction in their interest rates and between 30,000 and 40,000 potential new home buyers will not qualify to purchase a home.

If you have any comments or questions about this article, please email me at smeyers@kw.com.

Steve Meyers is a Managing Broker at Keller Williams Real Estate in Seattle, Washington.  He can be reached at (206) 972-3328 or smeyers@kw.com.

Condominium Loan Changes

Condominium Loan Changes
by Steve Meyers
August 29th, 2016

There have been some changes in the policies which govern condominium loans that are insured by Fannie Mae and Freddie Mac.

a.) The most significant change in policy allows for a loan to an owner-occupant, or condominium purchased as a second home (vacation home) to be insured by Fannie Mae and Freddie Mac if more than 50% of the units in the building are non-owner occupied units (rentals). Before this change, Fannie Mae and Freedie Mac would not insure loans if 50% or more of the units were rentals. However, a loan to an investor still requires fewer than 50% of the units to be rentals.

b.) Historically, if there were any litigation matters against the condominium association or the builder, neither Fannie Mae nor Freddie Mac would insure the loan. In general, this meant the borrower would have to seek a non-conventional loan for their purchase which would cost significantly more. Fannie Mae and Freddie Mac have changed their guidelines and now allow “Minor Litigation Matters”.

They still will not allow litigation involving safety, structural soundness, functional use, or habitability.

They will allow some “Minor Litigation Matters” where:

1.)The HOA is the plaintiff in litigation for past due HOA assessments.

2.)The result of the litigation will have an insignificant impact on the financial status of the condominium project.

3.)The litigation does not involve monetary consideration.

4.)The litigation involves a “Claim Amount” that is currently known by all parties, the insurance carrier has agreed to defend the “Claim” and, the HOA General Liability Insurance will cover the “Claim”.

c.) For buildings and complexes with more than 21 units, Fannie Mae and Freddie Mac will now allow a single owner to own up to 30% of the total number of units. Prior to this change a single owner could only own up to 10% of the units.

d.) The amount of commercial space in the building / complex can now be up to 30% of the total square footage in the building. Previously, it was limited to 25% of the total square footage.

e.) These agencies are now allowing the loan underwriter to sign off on a completed HOA Questionnaire without reviewing detailed Budget, Reserves, Minutes, etc. for borrowers of primary residences who put 10% as a down payment and borrowers on their second homes (vacation homes) who put 25% down as a down payment. For investors, Fannie Mae and Freddie Mac still requires the underwriters to perform a “Full Review” of the Resale Certificate and the supporting documents.

 

 

 

Appreciation, is it real?

Appreciation, is it real?

by Steve Meyers

On the surface, the generic statistics given to reporters and the media may be correct.  The single statistics that are accumulated by the aggregators of this information like Zillow and provided to reporters and the media leaves out an explanation of how these statistics can be misapplied or mis-interpreted.  Here are two examples.

In downtown Seattle if you were to compare the sale of two-bedroom condominiums over the last 12 months the appreciation may be reported to be, say twelve percent (12%).  So, if in June, 2015 the average sale price of 2 bedroom condominiums were, say $700,000 and in June of 2016 the average sale price of 2-bedroom condominiums were $784,000, that would be your 12% appreciation.  However, when you understand that Tower 1 of the new Insignia Condominium Project closed a significant number of 2-bedroom units during that same time frame with sale prices between $800,000 and $1,000,000, that will skew the average sale prices of other condominium projects in downtown Seattle.  What was the appreciation in those existing condominiums, say 5% or 6%.  I don’t know but, it wasn’t 12%.

Let’s look at single-family homes in the Ballard Neighborhood.  If the media reported the appreciation rate of single-family homes went up 14% in the last 12 months in Ballard, that would be wonderful.  However, if you take out, or consider, there have been a significant number of single-family homes that were purchased by developers to construct 3, 4, and even 5 townhomes on those single-family home sites, how will that skew the appreciation rate?  If your Ballard home were outside the areas in Ballard that allowed the re-development of your single-family parcel into 3, 4, 5 townhomes, would your site have increased in value by 14% …. No.

Granted, there has been significant appreciation in the two sectors above but, the statistics reported to reporters and the media by the aggregators of this information is many times incorrect because they take a broad brush look at the prices and have no idea what other things to consider.

If you have any questions or comments about this article please contact me.  Steve Meyers, Managing Broker, Keller Williams Greater Seattle, (206) 972-3328, smeyers@kw.com

Multiple Offers….Wahoo!

Multiple Offers….Wahoo!

by Steve Meyers
April 18th, 2016

So, your full service real estate agent did a wonderful job helping you prepare your single-family home or condominium for sale and he / she did an outstanding job marketing the property on-line, through “Open Houses” and directly to buyers and real estate agents. The date has come to “Review” Offers from buyers and you’re thrilled. There are 7 Offers to Purchase your property from buyers.

Back-up a few steps. Here are some things you may or may not have known. Did you know that you can share the terms and conditions of any of the Offers with one or more of the other potential buyers? Yes, if a seller would like their real estate agent to contact one of the other buyers and tell them what their current highest and best offer is and, allow that buyer to meet or beat the current Offer, the seller is allowed to do just that.

Did you know that a seller cannot accept an Offer based upon any of the protected classes as outlined by the federal government. For instance, a seller cannot accept an Offer because a couple has young children and the seller would like to sell their home to a family. This would be discrimination towards a single person who doesn’t have any children.

Once a seller reviews all 7 Offers and settles on one Offer to pursue, the seller should write on the first page of each of the other 6 Offers that the seller has reviewed the Offer and “Rejects” that Offer. The seller should then initial where he / she has indicated they have “Rejected” the Offer. Their real estate agent should then forward a copy of the first page to the agent representing that buyer.

“Sellers Right to Terminate”

“Seller’s Right to Terminate”
By Steve Meyers
February 29, 2016

The most recent Financing Addendum to the Purchase and Sale Agreement includes new language in Section 2 titled the Seller’s Right to Terminate.   Here is the new language.

a.Right to Terminate Notice: “At any time ______ days (30 days if not filled in) after mutual acceptance, Seller may give notice to Buyer that Seller may terminate the Agreement at any time 3 days after delivery of that notice (the Right to Terminate Notice)”.

b.Terminate Notice.  “If buyer has not previously waived the Financing Contingency, Seller may give notice of termination of this Agreement (the “Termination Notice”) any time following 3 days after delivery of the Right to Terminate Notice.  If Seller gives the Termination Notice before the Buyer has waived the Financing Contingency, this Agreement is terminated and the Earnest Money shall be refunded to Buyer”.  If not waived, the Financing Contingency shall survive the Closing Date.

What does this mean for the Seller?  Once the “Right to Terminate Notice” is provided to the Buyer, the Buyer must waive their financing contingency.  The Buyer has no further ability to terminate the transaction based upon any items within the Financing Contingency.  If the Buyer does not waive this contingency, the Seller can provide the “Termination Notice” and return the earnest money to the Buyer.

Why would the Seller terminate the transaction? If for whatever reason the Seller does not feel comfortable with the Buyers efforts to obtain financing, the Seller can use this “Right to Terminate” to force the Buyer to waive his / her financing contingency.   The Seller may also exercise this “Right to Terminate “  if they received another Offer to Purchase with better terms and conditions as the current Agreement.

What does this mean for the Buyer?  The Buyer needs to actively secure financing for the property prior to the Seller providing the “Termination Notice”.  If they have secured the financing from their Lender such that they are confident that the loan will fund at Closing, they will minimize the risk of losing their earnest money.  Once the Buyer waives their Financing Contingency, he / she can no longer terminate the Agreement based upon anything within that Agreement.  If the transaction fails to Close because of one of those elements in the Financing Agreement, they risk losing their earnest money deposit.

If you have any comments or questions about this article, please email me at smeyers@kw.com.  If you know of someone who would also like the information in this article, please forward it to them.You can find other articles I’ve written at  www.ourseattlehome.wordpress.com.

Steve Meyers is a Managing Broker at Keller Williams Realty in Seattle, Washington. He can be reached at (206) 972-3328 or smeyers@kw.com.

“Under Contract”, dont jeopardize your loan

By Steve Meyers
August 1st, 2014

I “Close” on the purchase of my new home next week, Thursday. It’s a much larger home than I previously lived in so I purchased some additional furniture for the third bedroom and living room. I put it on my credit card. I’m so excited.

Unfortunately, it’s very likely this Buyer no longer qualifies for the loan they needed to purchase the home. They purchased the furniture using a credit card and the minimum monthly payments on the card went up, thus reducing his available cash flow to pay his monthly mortgage. He just lost his dream home.

OR….I “Close” on the purchase of my new home next Thursday. Because it’s further away from work and my old car was on its’ last leg, I decided to lease a car for 2 years until I could afford to purchase a used car. Unfortunately, the periodic monthly car lease payment will reduce his available cash flow to pay his monthly mortgage. He just lost his dream home.

OR….I “Close” on the purchase of my new home next Thursday. I made an application for my loan back in November and it’s finally closing. At Christmas time I only had 8 people to purchase gifts for so I opened credit cards at Macy’s and JC Penney because of the fantastic deals when using store credit cards. Unfortunately, opening the two new lines of credit lowered his FICO Credit Score. The lender must now increase the interest rate on the loan which impacted his ability to buy his dream home.

What are the do’s and don’ts when looking for a home to purchase and prior to “Closing” on the transaction. When you meet with your lender to get Pre-Approved for a loan, ask him/her to supply you with a list if the important financial do’s and don’ts. There are many things that you might do that will jeopardize your ability to borrow money to purchase a home.

The Do’s and Don’ts of Borrowing
Employment:

a.) Changing jobs
b.) Trying to qualify for a loan with a recent raise
c.) Losing your job or reduction in hours
d.) Not working full time or on the job for less than two years
e.) Having a paycheck that does not have your name, address or year-to-date income on it
f.) Being self employed with declining income
g.) Being self employed less than two years
h.) Declining income

Credit:

a.) Late mortgage payments
b.) Credit lates, collections, or judgements
c.) Recent inquiries into your credit – they need to be explained
d.) Undisclosed litigation including filing for separation or divorce
e.) Address discrepancies
f.) Undisclosed debt that we discover during processing including child support/alimony
g.) Fraud alerts/homeland security

Assets:

a.) Recent deposits over $ 250 – they will need to be explained and documented to the lender
b.) Missing pages of bank statements or brokerage statements
c.) Internet print outs that do not have names or account numbers
d.) Transfers between accounts that are new and unable to trace
e.) Gift funds not documented properly

Rules to follow:

a.) Do not make any changes to your job. If something changes involuntarily advise the lender immediately
b.) Do not apply for any new credit cards or obtain any new debt. Do not let anyone look into your credit without telling your lender ahead of time
c.) Do not make any late payments. Pay all fines, traffic tickets and, return all library books.
d.) Do not spend assets over $ 1000 without discussing it with your lender
e.) Do not go on vacation or out of town without advising your lender
f.) Respond to your lenders requests for documentation within 24 hours
g.) Understand that the underwriter will “find out”. There are no secrets.
h.) Understand that if your lender asks you for something it’s because they need it not because they want it.
i.) Understand that this process is stressful but as a team you’ll get through it together.
j.) Understand that your lender must follow federal regulations and agency rules and guidelines even if they don’t make sense.

I’m looking forward to working with you on your purchase. Send me an email and let’s schedule an appointment to meet and discuss your needs and wants. If you know someone else who would like to read this article, please forward it to them.

Steve Meyers, Managing Broker
Keller Williams Greater Seattle
smeyers@kw.com
(206) 972-3328

1031 Exchanges, how do they work?

1031 Exchanges, how do they work?
by Steve Meyers
January 23rd, 2015

So…what is a 1031 Exchange and does it make sense for me to pursue this mechanism to defer my tax liability when I sell my property? Does my property qualify for a 1031 Exchange? What needs to happen to defer my tax liability into the future?

A 1031 Exchange is a method for deferring the tax liability on the sale of real or personal property into the future. Using this mechanism created by the IRS, you’re allowed to sell your real or personal property and not pay taxes on the Capital Gains if you re-invest the proceeds into another Like-Kind property within a specific period of time. This allows the owner to defer taxes they would have paid at the time of sale, to a later period when it is more advantageous to the owner. The common threshold is that if your tax liability is less than $10,000, there’s no real advantage to a 1031 Exchange.

What qualifies for a 1031 Exchange: Property that is held for a “trade, business, or investment” purpose qualifies for a 1031 Exchange. The definition of Like-Kind real property is very broad. For example, you can trade raw land for income property, a rental house for a multiplex, or a rental house for a retail property.

What does not qualify for a 1031 Exchange: Your primary residence or second home do not qualify for a 1031 Exchange.

The law requires you to work with a registered “Qualified Intermediary” to facilitate your 1031 Exchange.

To qualify for the 1031 Exchange you need to follow very specific rules and time-frames. You need to “designate specific properties” that you intend to purchase within 45 days of the sale of your property, known as the relinquished property. Here is a very simple explanation. If you intend to purchase between one (1) and three (3) properties, you must identify those properties within the 45 day time period and, you need to “Close” on any, or all, of those properties within 180 days from the “Closing” of the sale of your relinquished property. If you intend to purchase four or more properties (4+), you must identify all of those properties within the 45 day time period and, you must “Close” on all (100%) of those properties within 180 days of the “Closing” of the sale of your relinquished property.

If you have any comments or questions about this article, please email me at smeyers@kw.com. If you know of someone who would also like the information in this article, please forward it to them.

Steve Meyers is a Managing Broker at Keller Williams Realty in Seattle, Washington. He can be reached at (206) 972-3328 or smeyers@kw.com.



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