Acquire, renovate and resell in 90 days

FHA says flip away -- within limits

Temporary waiver of 90-day 'anti-flipping' rule extended through 2014

By Ken Harney, Monday, December 3, 2012.

Inman News®

Foreclosure sale image via Shutterstock.

Good news for single-family home investors, rehabbers and buyers seeking to use low down payment FHA financing: The temporary waiver of FHA's 90-day "anti-flipping" rule was extended last week through 2014.
The waiver, which facilitates purchases of homes from sellers who have held title to their properties for less than 90 days, continues a policy first adopted by the Obama administration in 2010.
Starting in 2003, FHA had imposed the 90-day standard as part of an effort to rein in rampant quick-flips of houses where investors made minimal or no improvements to rundown, foreclosed or abandoned houses, then sold them days or weeks later at high price markups with the help of inflated appraisals to purchasers using FHA loans.
Those flips frequently involved collusion and fraud by teams of mortgage loan officers, realty agents and appraisers -- even straw buyers who defaulted and disappeared without making a single payment -- and racked up significant losses to FHA's insurance fund. Neighborhoods suffered because the properties remained empty and in bad physical condition, depressing values of houses in the immediate vicinity.

Since 2011, FHA has made annual extensions of its waiver. This year, an FHA official told me Friday, the agency opted for a two-year term in order "to provide greater levels of certainty" for lenders and buyers, removing questions about whether, and for how long, the waiver would be continued. Since the first waiver in 2010, according to the official, FHA has successfully insured $11 billion worth of mortgages on 65,250 homes where the seller had held title for less than 90 days.
In a Federal Register notice Nov. 29 announcing the extension, Acting FHA Commissioner Carol J. Galante said the objective is to increase "the availability of affordable homes for first-time and other purchasers, helping stabilize real estate prices as well as neighborhoods and communities where foreclosure activity has been high."
Among the key requirements that will continue during the latest waiver:

• All transactions must be arm's-length, with no identity of interest between the buyer and seller or other participants. Lenders are required to ensure that the seller actually holds title to the property. (In earlier flipping schemes, buy-sell transactions sometimes moved so fast that the seller never acquired legal title.) There should be no "pattern" of previous flips of the property during the 12 months preceding the transaction.
• In cases where the sales price of the resold property is more than 20 percent more than what the seller paid for it, there must be documentation showing the renovations and repairs that justify the markedly higher resale price. A second appraisal may be used to substantiate the increase in value, but the second appraiser must be selected from FHA's roster. When no significant renovations occur and the price is 20 percent higher than acquisition, the appraiser must provide "appropriate explanation" for the sudden increase.
• Inspections are required of all the key components of the building structure and systems when price jumps exceed 20 percent. The inspection report must be provided to the purchaser before closing. If the inspection reveals structural or "health and safety" defects, repairs must be completed before the closing and a final inspection performed to ensure that the repairs have been made.

Real estate professionals and others involved in single-family investment activities welcomed the latest extension and its two-year time span. Kevin Kim, an agent with Windermere Preferred Living in Brea, Calif., said "this definitely benefits my investors, but it's also good for communities" where high rates of foreclosure have left properties sitting around in deteriorating conditions.
Kim said most of his investor clients do not exceed the 20 percent price-increase threshold -- "typically it's more like 10 to 12 percent" -- but they virtually all try to acquire, renovate and resell in less than 90 days.
Cathy Bureau, broker-owner of Green Home Realty in San Antonio, Texas, who specializes in the central areas of the city, says FHA's two-year extension assures investors that there will be takeout financing for buyers, thereby cutting costs on the "hard money" line of credit financing they use to acquire their houses. At interest rates of 14 to 16 percent, "every day costs money," she said, so for investors the ability to sell quickly after completing repairs is crucial.

Do No Harm to Housing

Call for Action: Do No Harm to Housing

The REALTOR® Party needs your urgent help to protect the stability of the American housing market and the American economy. By now you have seen numerous news reports concerning the “Fiscal Cliff.”

Many of these reports speculate that a change to the long-standing policy that allows homeowners to deduct mortgage interest payments from their income taxes could be part of a “Fiscal Cliff” deal. 

REALTORS® need to “remind” Congress about our position on any proposed changes to the mortgage interest deduction.

NAR's position is that the mortgage interest deduction is vital to the stability of the American housing market and economy and we will remain vigilant in opposing any future plan that modifies or excludes the deductibility of mortgage interest.

Please send this short message to your Senators and Member of Congress to remind them where we stand and that we will be watching to see who stands with us.

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Message Subject: Do No Harm to Housing

Dear [Decision Maker],

I am writing to you, as a constituent and as a member of the National Association of REALTORS®, concerning an issue of critical importance to the United States housing market and the economy.
As my elected official, it is imperative you remain vigilant in opposing any plan that modifies or excludes the deductibility of mortgage interest.The mortgage interest deduction is vital to the stability of the American housing market and economy.

I am sending this message to ask you to stand with 70 million American homeowners. I will be watching to see who stands with us.

Sincerely,
Patrick E. Rosenthal

GET A MORTGAGE RATE UNDER 4%

Mortgage experts weigh in on six ways you can get an interest rate near the record-setting lows.

Photo: Thinkstock

Low mortgage rates: everyone wants them, but not everyone can have them. And with rates dropping to record-setting lows, it's no wonder why they're such a hot commodity.
Mortgage rates hit record-setting lows at well under the 4-percent mark in the first week of October 2012. That's when Freddie Mac, the government-sponsored home financing corporation, reported the average 30-year fixed-rate mortgage (FRM) average dipped to 3.36 percent.
Unfortunately, not everyone will be able to take advantage of these low interest rates.
Why not? According to Brownie Stanisch, a senior loan consultant from Sherman Oaks, Calif., the qualifying guidelines for loan approval are tougher than ever due, in part, to the rising amounts of home foreclosures.
"Every time a property is foreclosed, lenders look at what caused the foreclosure," Stanisch says. "If they look at 10 property foreclosures and eight of them were homes (purchased by borrowers) with low credit scores or a low down payment, lenders feel they have got to be more stringent."
Want to find out if you could score a 4 percent mortgage rate or less? Consider these six key factors that mortgage experts say could help you get a low rate.

Factor #1 - Good Credit

Nothing moves the needle in terms of an interest rate more than a borrower's credit rating, mortgage experts say.
"Good credit is mandatory," says Laura Hertz, a loan officer based in Sherman Oaks, Calif. "People think no credit is good credit, but no credit is no credit."
A primary form of determining one's credit "rating" in the eyes of lenders is a borrower's FICO score, a numerical calibration of one's credit risk (invented in the 1960s by a company called Fair Isaac).
[Got a good credit score? Click to compare mortgage rates now.]
According to myFICO, the consumer division of Fair Isaac, lenders use your credit score to determine how much money you can borrow and at what interest rate. FICO scores range from 300 (on the bad end) to 850 (on the great end).
"It's important to maintain good credit," Hertz says. "A score of 640 is an OK credit score, but 740 and above will get you the best rates."
To review your credit report, the Federal Reserve System, which oversees national monetary policy and the banks, suggests ordering a copy from www.annualcreditreport.com.

Factor #2 - Good Down Payment

Getting an interest rate under 4 percent truly is a game of percentages. The mortgage rate you receive is likely to be inversely proportional to your down payment - that is, the more you put down, the lower your interest rate tends to be, according to Hertz.
"To get the very best rate, you have to have a 30 percent down payment," Hertz says. "A 20 percent down payment is good, and that can be worked with for a better rate."
[Are you able to put down a good down payment? Click to compare mortgage rates now.]
But is a 20 percent down payment the starting point for interest rates under 4 percent? Not necessarily.
Hertz says down payments of 10, 5, or even 3.5 percent are good amounts, too, but borrowers might have to pay additional fees or purchase private mortgage insurance (PMI) to offset risk issues such as poor credit.
The Mortgage Insurance Companies of America defines PMI as a measure lenders use "for protection in case the homeowner fails to make his or her (mortgage) payments."
Borrowers with a low down payment, according to Hertz, might have to include PMI with their loan package in order to get an interest rate under 4 percent.
"If you do 20 percent down, you don't end up with high PMI," Hertz says.

Factor #3 - The Right Lender

Getting a loan with an interest rate below 4 percent depends heavily on finding a lender or broker who has your best interest at heart. But how can you find the right lender?
For starters, you need to shop around and consider recommendations from people you trust, Hertz says.
"Listen to your realtor," Hertz says. "Get different business cards and different references. Almost every one of my clients is a referral from somewhere else."
[Ready to shop around? Click to compare mortgage rates now.]
You also must be prepared to ask lenders questions about their track record and performance levels, Hertz says. Among the questions you might consider asking include:

• How quickly do your loans close?
• Do you have references from people in the area I can call?
• Does your company have a good rating?
• How much experience do you have?
• Are you in communication with the underwriter (the person who approves or rejects loan requests)?

The answers to these questions will hopefully help you find a lender that can improve your chances of getting an interest rate below 4 percent.
"You have to find a lender who has the time and patience to deal with any issues you might have," Stanisch says. "They need to be able to advise you on whether you can do anything to improve your pricing conditions, so don't wait until you find a house to start the process."

Factor #4 - Stable Job History

How is your employment history? If you have been off and on the job for an extended period of time, that could affect whether your interest rate will find itself near the record-setting low marks, mortgage experts say.
Even with a good income, you'll still need to prove that your job history bodes well for your future employment, thus enabling you to borrow at a lower interest rate. The key word here: documentation.
"Lenders will definitely decline loans if you can't provide documentation or back up what you are telling them," Hertz says. "They don't take things at people's word unless they can be backed up."
[Think you have what it takes to land a low mortgage rate? Click to compare mortgage rates now.]
Hertz says you can expect lenders to ask you to sign a Form 4506 from the Internal Revenue Service to request a transcript of your tax return. You'll likely also be asked to provide pay stubs and bank statements to verify your income and assets.
People who are self-employed, receive other types of taxable income, or earn substantial commissions or bonuses have to be diligent in keeping track of their salary history, according to Hertz. Lenders tend to scrutinize job history the way Sherlock Holmes works a case, leaving no stone unturned.
Hertz recommends having the following documentation in good order to show lenders:

• Two years of tax documentation
• Any bonus check stubs from the previous year
• The most recent month of pay stubs
• Two forms of legal identification
• Two months of bank statements

"If your work hours are not guaranteed, that's a big problem," Hertz says. "If you're somebody who has a big part of their income that's a bonus or a sales rep whose income is decreasing, they might not qualify for the loan. You have to show your income is increasing or staying the same."

Factor #5 - Few Liabilities

The amount of debt you owe can play a significant role in whether you get an interest rate near the record-setting lows. If your financial liabilities or debts are too much in comparison to how much income you make, lenders might balk at giving you a rate below 4 percent.
The Federal Housing Administration (FHA), the government-sponsored mortgage financing entity, describes these debt ratios as loan requirements based on whether potential borrowers are "in a financial position that would allow them to meet the demands that are often included in owning a home."
A debt ratio is an indicator that measures the proportion of debt an individual has compared to their assets.
[Are you ready to score a low mortgage rate? Click to compare rates from multiple lenders now.]
For people with a lot of credit card debt, for example, Stanisch says you want to pay off balances or get them as low as possible before you attempt get a home loan with an interest rate under 4 percent.
Here are some other ways Stanisch and Hertz say you can improve your debt-to-income ratios:

• Lower your liabilities or debts, such as paying off a car
• Increase your income, perhaps by getting a second job
• Some combination of both lowering debt and improving income

Factor #6 - Loan Type

Choosing a loan type could spell the difference between getting an interest rate that's well below 4 percent and one that hovers high above it. So which way do you go - a conventional loan or one that's financed by a government-sponsored program?
Depending on your situation and the loan terms, Hertz says you might get a better rate with a government-backed loan.
"The FHA's actual rate can be a bit lower than a conventional loan," Hertz says, "but the mortgage insurance is often higher than a conventional loan."
[Shop around for the best mortgage loans and rates. Click to get started.]
Hertz says it's important for borrowers to be aware that getting an FHA loan can require an upfront insurance premium and another monthly premium based on the loan amount. But if having an interest rate under 4 percent is important to you, paying the additional premiums might be worth it.
"The upfront mortgage insurance and monthly (premiums) are aversions, but most Fannie and Freddie loans are under 4 percent," Hertz says.

Home sales climb 2% in October

Six key questions for Contractors

No matter how big or small the home remodeling project, you can find the perfect contractor by posing the right questions.

Photo: Thinkstock

Getting antsy to remodel your home? You might think your kitchen or bathroom needs a remodel right this minute, but remember: Haste makes waste.

Rather than rushing to hire the first - or even cheapest - contractor you come across, asking the right questions upfront will help you filter out the bad apples and find a reputable contractor to meet your needs.

"I want my clients to feel 100 percent comfortable with me," says Shawn Kruse, president of the Remodeling Contractors Association of Connecticut and owner of Kruse Home Improvement, LLC. "And honestly, the more investigation they do about me and questions they ask me, the better it is for me. It helps me get the job."

As Kruse points out, a thorough investigation can benefit both parties in the end.

"Potential clients learn about your credentials, background and experience. They start to get to know you and see if your personalities can get along," Kruse acknowledges.

[Ready to find the perfect home contractor? Click here to locate one in your area.]

You may know exactly what you want out of your remodel - from the fixtures to the flooring - but you should know what you want from your contractor, too. Don't settle for the first or cheapest bid. Your contractor will control the project - and probably your stress level - from start to finish, so it's important the two of you are a good match.

If you want to find a contractor who suits your needs, try asking these six questions during the interview.

Question #1: What's Your Business History (and Much More)?

You wouldn't hire a surgeon without knowing how many surgeries he or she has performed, would you? Well, your home is about to go under the knife, so you'll want to evaluate contractors with the same level of scrutiny.

Kruse suggests first asking questions about a company's business practices and experiences with the remodeling project you need. Find out what kind of procedures and rules this contractor would follow to meet your demands.

Here are a few other things Kruse thinks you should ask contractors:

• How long have you been in business?
• Are you licensed by the state?
• What percentage of your clientele is repeat or referral business?
• Are you a member of a national trade association?
• Do you have a list of references from past projects similar to mine?
• Have you or your employees been certified in remodeling or had any special training or education?

[Ready to put a contractor to the test? Click here to find one today.]

Kruse also recommends contacting a client with whom they are currently working. "This way, you can see how things are conducted on a day to day basis," he says. "You can find out if there are problems or issues that have arisen, and ask how well they communicate throughout the project."

Question #2: Do You Provide a Detailed Written Contract?

Misunderstandings happen. People forget. Things change. But a contract helps both you and the contractor know what is expected from both parties.

Every job, no matter how small, should have a signed contract by the contractor and customer, Kruse says. Seems like a no-brainer, right? Not so fast - the devil is in the details.

"A contract should be very specific and point out step by step what will be going on throughout the project and before it even begins," he adds.

Some things that should be on a contract - all written in great detail - include:

• Names, addresses, and phone numbers of all parties involved in the project, including vendors
• Detailed list of the work to be completed
• List of each product along with its price and model number
• Who is responsible for pulling permits
• Where deliveries will go and where the dumpster will be placed
• What time the workers begin and end their day
• Project's start and completion dates plus payment schedule
• All work carried out by subcontractors

[Ready to look for a home contractor? Click here to find one in your area.]

Anything that changes along the way must be written and signed in a change order, which makes sure everyone is in agreement on the change, price, time, or anything else that is adjusted from the original contract.

Question #3: How Much Do I Need to Put Down?

If the contractor asks you to pay for all of the project's cost upfront, it's time to find another contractor. An unreasonable deposit is the first sign something is fishy, Kruse says.

The Better Business Bureau's website suggests going by the rule of thirds: Pay one third at the beginning of the project, one third when work is 50 percent complete, and one third after it is final and you are satisfied with the outcome.

But chances are your contractor will have a formula to determine how much money is needed to get the job started. "Most contractors go with a 15 percent down payment on larger projects," Kruse says. "My clients usually give me the 15 percent deposit at the same time they hand me the signed contract."

[Ready to start your home remodel? Click here to find the right home contractor today.]

Keep in mind that if the job is a small one, it's okay to provide money for the cost of materials - which might be 50 percent of the job or a little more, he says.

Question #4: Can I Get Itemized Price Estimates?

Some contractors like to hand you a bid with one price estimate for the entire project because it's less work on their end. Don't let them. You will need details on all the costs associated with the project and each item purchased.

Here's why an itemized estimate is essential: If midway through the project you decide to put in a less expensive countertop than the one originally discussed, you need to know the exact cost of the first countertop. Without it, you have no way of knowing how much of a credit you should receive.

An itemized price list should detail the cost of labor, demolition, materials, electrical, plumbing, permits, and more.

Kruse explains how an itemized estimate is better for client and contractor: "It just makes it easier to track work, and it's transparent to both the client and I of what is expected on the job. I also offer my preferred vendor list to our clients so they know who we are buying their products from."

Some contractors use their estimates as proposals, but these might be very inaccurate and could mislead the homeowner, Kruse says. Don't assume anything. Be certain that once you sign a contract, what you see on paper is what you will be paying.

Question #5: Who Will Be at the Site?

Just hiring your contractor doesn't ensure he or she will be the one hammering and sawing. They might only show up to sign the contract and present the finished product. It's important to know that certain contractors manage their companies by getting bids or supervising many job sites at once and are not hands-on people.

How do you find out which one you have? "Ask potential contractors who is going to be in charge of your project at all times," Kruse says. "You need to meet with that person, get a feel for what he/she is like and get acquainted a bit. Go check out that person at one of their current jobs."

[Ready to get started on your home remodel? Click here to find a contractor in your area.]

In their "Home Sweet Home Improvement" guide, the Federal Trade Commission urges homeowners to ask if subcontractors will be used on the project. If so, homeowners should ask to meet them to make sure they have insurance coverage and proper licenses.

When meeting the subcontractor, ask if the lead contractor pays them on time. Why is this little detail important? According to the Federal Trade Commission, "A 'mechanic's lien' could be placed on your home if your contractor fails to pay subcontractors or suppliers," who, in turn, could take you to court to retrieve their unpaid bills.

Question #6: Do You Think We Can Get Along?

Just like any good relationship, the one between you and your contractor should have harmony, communication, and collaboration. Some personalities and styles just don't mesh, so don't pick someone just because their bid is the lowest, says Kruse.

Your contractor will be part of your daily existence for quite some time. They will see how your children behave, how you don't water your plants, and how your breakfast dishes sit in the sink all day.

Hiring a contractor without much thought can be a big mistake, says Kruse. "Sometimes [homeowners] end up with work that is less than adequate, or they give these shady contractors a large chunk of money upfront and then they never show up again."

Protecting yourself from these nightmares means knowing exactly who your contractors are before you hire them. After all, it doesn't hurt to ask - but it sure could hurt if you don't.

Buying Home 45% Cheaper than Renting

You can save hundreds of dollars a month by buying a home instead of renting – especially if you can get today’s low mortgage rates, itemize your tax deductions and plan to live there for 7 years.

The most important housing decision that most consumers face is whether to rent or to buy. So to help them with this decision, we took a look at the key market factors affecting the cost of homeownership.  First off, asking home prices have started to rebound and have risen by 2.3% year over year in August (3.8% excluding foreclosures); however, rents have risen more (4.7%). This means that prices are lower relative to rents than they were a year ago. But more importantly, mortgage rates have fallen: the best rates this summer have been around 3.5%, while last summer rates were closer to 4.5%. Based on asking prices and rents during the summer of 2012, buying is now 45% cheaper than renting in the 100 largest U.S. metros, on average – that’s a savings of $771 a month. If you plan to stay in a home for 7 years, which is the average time that Americans traditionally live in a home before moving again, it is more affordable to buy than to rent in ALL of the 100 largest metros in the U.S.

Costs aside, the decision to rent or buy a home is very personal. There’s a strong emotional component: some people want the security of homeownership and others want the footloose freedom of renting. But the financial factors are also very personal because the decision to rent or buy depends on:

1. Can you qualify for a mortgage at the best rate available?
2. Which tax bracket are you in, and do you itemize your deductions?
3. How long will you stay in your home?

To calculate whether renting or buying costs less, we assume people can get a low mortgage rate of 3.5%, itemize their federal tax deductions and are in the 25% tax bracket, and will stay in their home for seven years. (Below, we’ll show how changing these assumptions can affect the rent-versus-buy math.) We do the following calculations:

• First, we looked at all the homes for sale and rentals listed on Trulia in June, July and August 2012. On for-sale homes, we took the asking price and estimated what it would rent for; for rentals, we took the asking rent and estimated what it would sell for. That way, we can calculate the average rent and asking price for an identical set of properties in a metro area, for a direct apples-to-apples comparison. By looking at homes currently for sale or rent, we’re able to illustrate the actual housing options that consumers face right now.

• Second, we estimated the total costs of renting and buying for the typical property in a metro over a seven-year period. We factored in all the costs of homeownership (e.g., closing costs, maintenance, insurance, taxes, etc.), along with the tax benefit of deducting mortgage interest and property taxes, as well as the proceeds from selling the home after seven years with modest home price appreciation. On the rental side, we factored in renters’ insurance and the security deposit. Finally, we calculate the net-present-value of all those costs to capture the opportunity cost of tying your money up in a down payment. This gives us the total cost of buying versus renting. We then calculated the dollar difference and percentage difference between renting and buying.

• Finally, we looked at alternative scenarios of the costs of renting versus buying, by changing the mortgage rate, the income tax bracket for tax deductions, and the time horizon.

Where Buying is a Slam Dunk
With a 20% down payment, a 30-year fixed mortgage rate at 3.5% and at the 25% federal tax bracket, homeownership is cheaper than renting in all of the 100 largest metros by a wide margin. There is no market where the financial decision is even close, so long as you plan to stay in the home for at least seven years, get 3.5% mortgage, and itemize your tax deductions. However, how much cheaper it is to buy a home than to rent really depends a LOT on where you live.

Buying is 24% cheaper than renting in Honolulu, 28% cheaper in San Francisco, and 31% cheaper in New York. On the other end of the spectrum, homeownership is extremely affordable in Detroit, where buying a home is 70% cheaper to buy than to rent, and 63% cheaper in both Oklahoma City and Gary IN. Check out the top 10 lists below to see where the cost differences between buying and renting are smallest and largest.

Where the Financial Advantage of Buying Over Renting is Smallest
U.S. Metro	Monthly cost of home ownership ($)	Monthly cost of renting ($)	Difference ($)	Difference (%)
Honolulu, HI	$1,519	$2,007	-$488	-24%
San Francisco, CA	$2,327	$3,226	-$899	-28%
New York, NY-NJ	$1,857	$2,687	-$831	-31%
San Jose, CA	$1,819	$2,646	-$827	-31%
Los Angeles, CA	$1,379	$2,020	-$641	-32%
Ventura County, CA	$1,516	$2,274	-$759	-33%
Orange County, CA	$1,610	$2,423	-$813	-34%
San Diego, CA	$1,314	$1,981	-$667	-34%
Albany, NY	$999	$1,535	-$536	-35%
Long Island, NY	$1,603	$2,513	-$910	-36%

Note: Cost of homeownership assumes that the home is sold after 7 years and includes closing costs, maintenance, insurance, property taxes and other costs. Cost of renting includes security deposit and renters insurance. Monthly cost is based on net present value of costs over 7 years. Monthly costs are based on the average across all properties listed in the metro area, including those for sale and those for rent, in summer 2012.

Where the Financial Advantage of Buying Over Renting is Huge
U.S. Metro	Monthly cost of home ownership ($)	Monthly cost of renting ($)	Difference ($)	Difference (%)
Detroit, MI	$349	$1,149	-$800	-70%
Gary, IN	$616	$1,649	-$1,033	-63%
Oklahoma City, OK	$590	$1,576	-$987	-63%
Lakeland-Winter Haven, FL	$495	$1,276	-$781	-61%
Toledo, OH	$476	$1,222	-$746	-61%
Dayton, OH	$524	$1,332	-$808	-61%
Warren-Troy- Farmington Hills, MI	$588	$1,494	-$907	-61%
Memphis, TN-MS-AR	$548	$1,389	-$841	-61%
Cleveland, OH	$585	$1,464	-$879	-60%
West Palm Beach, FL	$723	$1,764	-$1,041	-59%

Note: Cost of homeownership assumes that the home is sold after 7 years and includes closing costs, maintenance, insurance, property taxes and other costs. Cost of renting includes security deposit and renters insurance. Monthly cost is based on net present value of costs over 7 years. Monthly costs are based on the average across all properties listed in the metro area, including those for sale and those for rent, in summer 2012.

What does this mean in dollars? Buying is cheaper than renting by several hundred dollars a month in every large metro. The charts above show how the percent difference in buying versus renting may be smaller in San Francisco (-28%) than in almost all other metros, but the annual dollar savings is big ($899) because the rents and home prices there are so high – so even a smaller percentage difference means a big dollar difference. (Remember that we’re looking at the annual cost of buying or renting the typical listed home. Most homes listed are for-sale, and for-sale homes tend to be much larger than rentals, on average. That’s why the monthly cost of renting the typical home is higher than the actual amount most renters pay.)

Understanding Rate Locks

 

Talking Points

• The rate lock might be the most complicated issue mortgage borrowers need to understand.
  
    
• A rate lock is a guarantee that the lender will offer the borrower a specific combination of interest rate and points.  A point is a fee or rebate equal to 1 percent of the loan amount.
  
    
• Also essential to a rate lock is a time period, typically 10, 15, 30, 45 or 60 days.
  
    
• A rate lock protects the borrower from rate fluctuations for the duration of the lock period. If market rates rise after the rate is locked, the borrower will still get the lower rate, to the lender's detriment.
  
    
• But there's a downside: If rates fall after the rate is locked, the borrower might not be able to take advantage of that opportunity.

Trust Terminology

These terms can get confusing; here is a breakdown:

Term	Definition
Revocable trust	A trust that can be revoked.
Revocable living trust	A trust that can be revoked and that takes effect during the life of the grantor. Becomes irrevocable at the death of the grantor. Usually made to avoid probate.
Irrevocable trust	A trust that cannot be revoked.
Irrevocable living trust	A trust that cannot be revoked and that takes effect during the life of the grantor.  Usually made to transfer wealth, protect assets, or reduce taxes.
Testamentary trust	A trust created during the life of the grantor, but that takes effect at the grantor’s death.  Usually made as part of a will – for example, a child’s trust made to name a trustee for property left to a minor.

Housing Affordability Hits Record High

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The Housing Affordability Index rose to a record high of 205.9 in the first quarter of 2012, breaking the 200 mark for the first time since recordkeeping began in 1970.

According to NAR, a household earning the median family income of just under $61,000 could afford a home costing $325,500 in the first quarter. That's remarkable purchasing power when you consider that the median cost of an existing home nationwide is $158,100.

Currently, the median monthly mortgage principal and interest payment for a median-priced home would take only 13.5% of gross income.

Commenting on the report, NAR's president Moe Veissi said, "We've never seen better housing affordability conditions or market opportunities than we see at present."

Housing affordability is based on a combination of factors, including the median home price, median family income and the average mortgage interest rate. A composite Housing Affordability Index of 100 is defined as the point where a median-income family household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a down payment of 20% and 25% of gross income devoted to mortgage principal and interest payments.

Also, conditions for first-time homebuyers have never been better. A companion index measuring the ability of first-time homebuyers to purchase a home rose to a record high of 135.8 in the first quarter. The index is configured differently for first-time homebuyers: an income of 65% median ($39,632), a starter home of 85% median ($134,400), and a down payment of 10%.

According to NAR, first-time homebuyers could afford a home costing $182,500, an amount well above the overall median-price home.

For the year, the Housing Affordability Index is projected to set a record high average of 191.

Compare energy use with neighbors

Tip of the Week: App lets homeowners compare energy use with neighbors
Facebook, the Natural Resources Defense Council (NRDC) and Opower have joined with 16 utilities to launch a social energy app that leverages the Facebook platform to allow people to quickly and easily start benchmarking their home’s energy usage against similar homes, compare energy use with friends, enter energy-saving competitions, and share tips on how to become more energy efficient.

Find out more about the app at: http://opower.com/company/news-press/press_releases/50.

RENT VS OWN

Historically, the cost to rent an apartment has been about 10 percent lower than the after-tax cost of owning a home.  That rental discount began to fall in 2010 and disappeared entirely last year, according to analysts at Deutsche Bank who track housing costs. By the end of 2011, the bank’s research found that the cost to rent an apartment was about 15 percent higher than the cost to own a home.

the AMERICAN DREAM??

WELCOME EVERYBODY TO APRIL ~ QUARTER #2 OF 2012

DID YOU KNOW ITS REALLY, REALLY A GREAT TIME TO BUY REAL ESTATE?

HAVE YOU SEEN THE PRICE TO RENT THESE DAYS?

REAL ESTATE TODAY IS DOMINATED BY TWO TYPES OF BUYERS:

     -ALL CASH INVESTORS.

     -FIRST-TIME HOME BUYERS WITH 3.5% DOWN FHA LOANS.

REVIEW YOUR MONTHLY HOUSING EXPENSES AND CONSIDER THE COST TO OWN VS. RENT.

I WOULD BE GLAD TO GET YOU IN TOUCH WITH A LOCAL MORTGAGE BROKER WITH OVER 30 YEARS OF FINANCING LOANS IN THE BANKING INDUSTRY!

SIMPLY EMAIL REQUEST TO patrick@yourHOMEinvestment.com

TAKE CARE AND BE WELL!

THE AMERICAN DREAM

Home owners are healthier, their kids have less teen pregnancy, get better grades, get better jobs out of college, and marriages are stronger. Home owners are more involved in their community, charities, and they vote. Home ownership adds a ton of social and cultural benefits to this country, and those home owners literally knit us together as Americans.

Housing Affordability Index Hits Record

Washington, March 06, 2012

Housing affordability conditions have reached the highest level since record keeping began in 1970, according to the National Association of Realtors®.

NAR’s Housing Affordability Index rose to a record high 206.1 in January, based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power.

An index of 100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent downpayment and 25 percent of gross income devoted to mortgage principal and interest payments. For first-time buyers making small downpayments, the affordability levels are relatively lower.

NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said this latest data underscores buyer opportunities in today’s market. “This is the first time the housing affordability index has broken the two hundred mark, meaning the typical family has roughly double the income needed to purchase a median-priced home,” he said. “For buyers who can qualify for a mortgage, now is a very good time to become a homeowner.”

NAR projects the affordability index for all of 2012 will be at an annual high, with little movement in mortgage interest rates or home prices during the year. “Housing inventory levels have declined to a point where conditions are becoming much more balanced in much of the country,” Veissi said. “If access to credit improves, we could see a much more meaningful increase in home sales and broader stabilization in home prices with modest gains in areas with stronger job growth.”

FHA Insurance Premiums Will Increase

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If your are considering buying or refinancing a home, you should let them know that the Federal Housing Administration (FHA) will soon increase mortgage insurance premiums on FHA home loans. 

The Department of Housing and Urban Development (HUD) announced it would increase the annual mortgage insurance premium (MIP) by 0.10% for FHA loans under $625,500. This would raise the fee from 1.15% to 1.25% of the total loan amount. This annual premium increase — which is broken down into monthly payments — takes effect April 1, 2012.

In addition, HUD announced it would raise the FHA's upfront annual mortgage insurance premium (UFMIP) from 1% to 1.75% effective April 1, 2012.

Starting June 1, 2012, the MIP for FHA loans over $625,500 will increase 0.35%, raising that fee to 1.50% of the total loan amount.

The primary reason for the changes is to bolster capital reserves for FHA's Mutual Mortgage Insurance Fund. Congress has mandated the fund keep 2% in reserves. Last year, that reserve had slipped to 0.2%. The changes are expected to generate about $1 billion annually for the fund. 

The increase in mortgage insurance costs applies to the purchase or refinancing of all FHA loans regardless of the amortization term or loan-to-value (LTV) ratio. The increases will not apply to borrowers already in an FHA-insured mortgage, a Home Equity Conversion Mortgage (HECM), and other special loan programs to be outlined in a forthcoming FHA Mortgagee Letter.

For those considering refinancing or making a purchase, they might want to act before the new mortgage insurance premiums take effect.

If you would like more information about what these higher fees will mean, please contact me today.

The Tax Benefits of Refinancing

Many people refinanced their mortgages in 2011 to take advantage of super-low interest rates. If you refinanced last year, here's how to make sure you claim all your rightful deductions on your 2011 return.

Deducting Your Mortgage Interest

Say your original mortgage was $200,000. On July 1, 2011, you took out a new 30-year, $300,000 mortgage and paid 1 1/2 points, or $4,500, for the privilege. (Each point represents 1% of your total loan amount.) You then used the extra $100,000 from the new mortgage to eliminate some high-interest credit-card bills, pay off your car loans and cover various other expenses.

Assuming your home was worth at least $300,000 when you refinanced, you have, in effect, two new mortgages as far as the Internal Revenue Service is concerned. The first $200,000 of your new loan (the balance on your old mortgage when you paid it off) is treated as "home-acquisition debt." And the interest on this qualifies as an itemized deduction on line 10 of your Schedule A.

The remaining $100,000 of your new loan is treated as home-equity debt. The interest on this should also qualify as an itemized deduction on line 10 of your Schedule A. But keep one thing in mind: The IRS only recognizes home-equity loans up to $100,000; you can't deduct the interest paid on principal above that figure.

Also, if the home-acquisition debt plus the home-equity debt exceeded the fair-market value of your home, you generally can't deduct the interest on the excess debt. Say your home was worth $240,000 when you took out that new $300,000 loan. You can deduct the interest on the $200,000 of acquisition debt. However, for the home equity debt, you can only deduct the interest on $40,000. So you can deduct 80% ($240,000/$300,000) of the total mortgage interest on line 10 of your Schedule A. (The interest on the remaining $60,000 of debt is generally considered a nondeductible personal expense, though there are a couple of exceptions, like if you used the loan proceeds to finance your small business.)

Talking Points

You can also amortize the points related to the home-acquisition-debt part of the new loan ($3,000 in our example) over the life of the loan. Say it's a 30-year loan (360 months). Your amortization deduction would be $8.33 a month ($3,000 divided by 360), for a grand total of $99.96 a year. Every little bit helps, right?

What about the points related to the home-equity debt ($1,500 in our example)? You can amortize those in the same proportion as the interest, provided that the home-equity debt is $100,000 or less, and the home's value isn't less than the home-equity debt plus the acquisition debt. Claim the amortization write-off for your home-mortgage points on line 10 or 12 of Schedule A.

This brings us to our last potential deduction. If you previously refinanced your mortgage and paid points, you probably have a good-sized unamortized (or not-yet-deducted) balance for those points. You can generally deduct that entire unamortized amount when you refinance again. For example, say the mortgage you refinanced last year was taken out in a previous refinancing deal done six years earlier, back in 2005. At that time you paid $2,000 in points for your 30-year loan. You should have $1,600 worth of unamortized points left over from the 2005 loan (80% of the original $2,000 amount). On your 2011 return, don't forget to deduct the $1,600 of unamortized points. Claim your write-off on line 12 of Schedule A.

New 2012 Real Estate Laws Protects Homeowners, Buyers, Tenants -Part 1

New 2012 laws that took effect as of January 1, 2012.

Condo Rentals: Starting Jan. 1, owners of units in a common-interest development , usually a condominium, must be allowed to rent or lease their units unless it was restricted before they took ownership. Senate Bill 150 was designed to counter new homeowner association rules put in place to stem the tide of tenant-occupied properties. It does not apply to rental restrictions prior to Jan 1. Condo owners must provide to their HOA proof of their purchase date and contact information for their tenants. And certain changes of title, probate, spousal, parent-to-child, adding a join tenant, and other transfers exempt from property tax reassessment, do not reset the date of ownership.

Plans to help responsible homeowners?

President Obama details plan to help responsible homeownersIn his State of the Union address, President Obama laid out a plan to help responsible borrowers and support a housing market recovery.
Key aspects of the president’s plan include:

• Broad-based refinancing: The president’s plan will provide borrowers who are current on their payments with an opportunity to refinance and take advantage of historically low interest rates
• Homeowner Bill of Rights: The president is putting forward a single set of standards to make sure borrowers and lenders play by the same rules, including: Access to a simple mortgage disclosure form, so borrowers understand the loans they are taking out; full disclosure of fees and penalties; guidelines to prevent conflicts of interest that end up hurting homeowners; support to keep responsible families in their homes and out of foreclosure; and protection for families against inappropriate foreclosure, including right of appeal.
• First pilot sale to transition foreclosed property into rental housing: The FHFA, in conjunction with Treasury and HUD, is announcing a pilot sale of foreclosed properties to be transitioned into rental housing.  C.A.R. is opposed to bulk sales of REO properties in California. 
• Providing a full year of forbearance for borrowers looking for work: Following the administration’s lead, major banks and the GSEs are now providing up to 12 months of forbearance to unemployed borrowers.
• Pursuing a joint investigation into mortgage origination and servicing abuses: This effort marshals new resources to investigate misconduct that contributed to the financial crisis under the leadership of federal and state co-chairs.
• Rehabilitating neighborhoods and reducing foreclosures: In addition to the steps outlined above, the administration is expanding eligibility for HAMP to reduce additional foreclosures, increasing incentives for modifications that help borrowers rebuild equity, and is proposing to put people back to work rehabilitating neighborhoods through Project Rebuild.

Parents Act as Kids' Mortgage Lender

Daily Real Estate News | Thursday, February 02, 2012

The tightened lending standards are keeping a lot of young professionals on the sidelines in home buying today. That’s where more parents are stepping in.

More parents are taking on the role as mortgage lenders to help their kids take advantage of low home prices and record-low mortgage rates. In fact, one in three first-time home buyers either received a gift or loan from their families for a home purchase made in 2011, according to National Association of REALTORS®’ research.

But parents who enter into a gift-giver or mortgage lender role need to make sure they follow some tax guidelines.

For one, the federal government has rules on how much you’re allowed to gift. For 2012, individuals can give up to $13,000 tax free in one year without having to pay gift taxes. Married couples can give up to $26,000 a year.

Some parents, instead of providing a gift, are acting more as a mortgage lender. They can set up an arrangement where they charge interest on the money they lend, but the interest charged must be based on the IRS’s “applicable federal rate” minimum for various loan maturities. Still, those rates are even far below today’s record-low mortgage rates (anywhere from 0.19 percent or even less for three-year loan terms to 2.63 percent for nine-year loan terms).

Parents will need to pay income taxes on any interest earned on the loans. Still, the return may be better than what they can get for a low-interest CD or money market fund nowadays. As for the children, they’ll still be able to deduct the interest on their taxes for the mortgage interest deduction if these agreements are formally structured.
Source: “Become Your Kid’s Mortgage Lender,” Fortune (February 2012)

Successful Homeowners Since 2009

Good news: those who bought homes in 2009 and later have become one of the most successful groups of homeowners. Mortgage default rates have been exceptionally low.
Bad news: the loan approval process has become so strict since 2009 that only super-high credit score individuals are able to obtain mortgages. A good chunk of middle-class borrowers have therefore been shut out of the market.

Is there any hard factual evidence to show that lending standards are just way too tight? Well, the Federal Reserve’s white paper, released last week, explicitly emphasized the need to ‘remove some of the obstacles preventing creditworthy borrowers from accessing mortgage credit’ in order to upgrade the economic growth prospects.
As for the data, consider the following loan performance by the vintage year after one year from the time of origination on Fannie and Freddie backed mortgages. Loan default rates were 0.3 to 0.4 percent in the more normal housing years of 2002 and 2003, well before the developments of a bubble. The default rates then rose to 2 and 3 percent in the immediate years of the bubble crash in 2007 and 2008. For those who took out loans in 2009 and 2010, the default rates came in at 0.1 and 0.2 percent after one year of seasoning – exceptionally low figures. The data for 2011 is not yet available, but several indications point towards possibly an even better loan performance than in 2009 and 2010. Though headline mortgage default news is driven by the souring loans from the bubble years, the default rates among recent borrowers have been at historic lows. Banks and the regulators need to understand this important distinction and permit more loans to flow into the market.

A good rental history can help borrowers

First-time home buyers planning to purchase a house later this year may have a better chance of qualifying for a mortgage if they have had a history of paying their rent on time.
Making sense of the story

• Last year, credit-reporting agency Experian added a section to millions of credit reports showing on-time rent payments and raised the credit scores of many people.  The company said that this year it would add in negative marks, including mentions of bounced checks or of tenants’ leaving before a lease was up.
  
• Incorporating rental payments into credit scores could affect millions of people who have not established credit histories through credit cards, student loan repayments, and other credit sources.
  
• Almost half of consumers considered “high-risk” experienced an increase of 100 points or more after their positive rental history was added, according to Experian’s rent bureau.  Those with average or higher scores did not experience major movement.
  
• Although it is still too early to show the effects of the new credit report, which began in December, the changes are intended to allow lenders and consumers to have greater transparency, according to Corelogic.
  
• People who have lost their homes to foreclosure and are now leasing may be able to rebuild their credit histories by being responsible renters.
  
• However, consumer groups and advocates are skeptical, noting that reports are sometimes riddled with mistakes and some landlord-tenant disputes may be difficult to capture in a credit report.  Rent may not have been paid, for example, because the furnace was left unrepaired for months.

6 WAYS TO SAVE YOUR UNDERWATER HOME

What seemed like a housing market downturn is now nearly universally seen as the new normal. Accordingly, many homeowners are taking a tough look at their mortgage situations in this stark light.

This New Year's season, I've received a massive influx of reader questions -- quasi-challenges, really -- asking me why they shouldn't just walk away from their underwater homes and upside-down mortgages. If you've read my work at all, you'll know that I almost never give an absolute answer to such an important question. The decision whether to walk away from your home is too big and too personal, and there are simply too many variables -- legal, financial, credit, tax, personal, lifestyle, family, etc. -- at play for me to give a glib black-and-white answer.  If you're trying to make this decision now, it absolutely behooves you to consult with a reputable real estate broker, mortgage broker, local attorney and local tax professional -- at minimum.  However, I've also noticed that most upside-down homeowners don't really want to default on their mortgages. If you count yourself in that number, I thought I'd take the opportunity this New Year's week to encourage you to harness the renewed energy and commitment that comes along this time of year and provide you with some direction for it, in the vein of avoiding foreclosure if you decide that is the right path for you.  Here are six alternatives to walking away, some more obvious, some less, but all underutilized, from my vantage point.

1. Get rid of your credit card debt. Again, this might seem obvious, but I've encountered a number of people who say they can't afford their mortgage payments who actually could afford them if they dealt with their credit card and other debt.
Call your creditors and make an effort to settle your debt; many will take a lump sum payment much lower than your balance. While this might have tax and credit score implications, it might also help you keep your house. Or work through steps No. 2 and No. 3, below, to just eliminate those balances, by any means necessary.

2. Get a second job. This seems obvious, too, but I believe it's simply not done nearly as often as it should be, mostly out of pride and emotional defeatism.
You already work 40 hours a week. You're already tired. But you know what? I know MBAs who got into a bad debt situation and are climbing their way out with high-end, table-waiting tips. It won't last forever and, again, could be very much worth it.
If you're not up for this sort of hustle, and you're a white-collar professional, there are tons of consulting or contract gigs out there to be had, which can help you catch up on missed mortgage payments or bring down your debt.

3. Start a side business. Sites like Etsy, TaskRabbit and elance allow people to monetize their spare time, quirky hobbies and special skills. I know a journalist who nearly matches her day-job income dog-sitting while she writes.

4. Rent a room -- or two -- out. Put your man cave on Trulia or Craigslist for rent. If you can't stomach the idea of a permanent roommate, check out Airbnb and see if you can generate some extra cash renting out your rooms to those visiting for short periods of time.

5. Apply for everything. Decide right now to simply refuse to be deterred by the first roadblock that comes up in your pursuit of a loan modification -- and there might be many. Commit, instead, to applying for everything for which you might possibly qualify, and don't make assumptions about what programs might work for you (many loan mod programs have loosened their guidelines or gotten more efficient over time).
Apply through your lender to the federal HARP program, and also to the lender's own loan mod program. Visit this federal site to determine whether there are additional state programs available to you under Treasury's Hardest Hit Fund. Apply to the wildly successful (as these things go) Home Save program run by NACA.

It ain't over till it's over.

6. Short-sell it. Banks are now taking a couple of years, on average, after the first missed payment to foreclose on and repossess a home. If you list your home for sale with a local agent who has experience closing these transactions right this moment, your chances of selling it and having the short sale complete in time to qualify for the income tax exemption that expires Dec. 31, 2012, are actually better than your chances of qualifying for the exemption if you stop making your mortgage payments right now.
Again, it's ubercritical that you work with professionals, from the folks at NACA to a local agent and attorney and certified public accountant (CPA) if you're seeking a loan mod or a short sale. Beyond advising you about implications to be wary of, the pros can help educate you about the full scope of options available to you.

Your best bet is to run even getting a second job past your trusted advisers before you do it, as it might impact your prospects of getting relief from your lender.  Fortunately, your options for avoiding a foreclosure are not so limited as they might seem at first glance.

Happy New Year!!

Wishing you a Healthy, Happy and Prosperous New Year!