FHA Expected to Charge Private Mortgage Insurance for the Life of the Loan

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The Federal Housing Administration, a division of the US Department of Housing and Urban Development, is soon to be implementing some major changes. At least that’s what this Wall Street Journal blog post says. The news is not good. At a time when many homeowners or hopeful homeowners need the government’s help in owning a home, the FHA seems to be turning its back on those that need it the most.

Until now, and at least through the next several months, FHA financing has helped countless borrowers with such features of the program as low down payment (just 3.5%), ability to use gift monies toward the purchase of a home and facilitating home ownership for people with less-than-perfect credit.

But now, if the proposed changes take place come next quarter then we will definitely see a huge shift in the housing market. Right now, as always has been the case with FHA loans, borrowers are charged a PMI premium through the first five years of the loan and until there is at least 22% equity in the property. The changes however will dictate that PMI be charged for the life of the loan.

How does this impact you as a homebuyer? As a seller?

Buyers’ Purchasing Power Will Take a Hit

The single biggest thing that will happen with this change is how much money each month will go toward additional costs of owning a home versus going toward the principal. That means that unlike now when a homeowner can expect to be paying off their home at a reasonable pace, particularly once PMI drops off, they will have to endure these costs till the home is paid off.

Refinances Will Be a Thing of the Past

With the cost of FHA financing going up in this significant manner, no homeowner will ever want to engage in a refinance, particularly if they only have one or two more years of PMI due on the property. That means continued high interest rates would be paid on existing mortgages with no hope to refinance without taking a serious hit. Of course, all this steers our economy in the wrong direction.

Sellers Can Expect Challenges in the Market

From a seller’s standpoint, the likelihood of a depressed market to ensue following this colossal change is high. The current number of borrowers that are using FHA products is high and with a huge decline in the number of FHA mortgagors there will be as many fewer buyers on the market.

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If you have any questions about this or would like to explore your options before this seemingly historic change is implemented, I invite you to come visit me or call. I’m happy to help!

Happy Thanksgiving!

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We would like to wish you all a Happy Thanksgiving!

In lieu of this special time with family and friends, I would like to share with you a poem by Edgar Albert Guest:

Thanksgiving

Gettin’ together to smile an’ rejoice,
An’ eatin’ an’ laughin’ with folks of your choice;
An’ kissin’ the girls an’ declarin’ that they
Are growin’ more beautiful day after day;
Chattin’ an’ braggin’ a bit with the men,
Buildin’ the old family circle again;
Livin’ the wholesome an’ old-fashioned cheer,
Just for awhile at the end of the year.

Greetings fly fast as we crowd through the door
And under the old roof we gather once more
Just as we did when the youngsters were small;
Mother’s a little bit grayer, that’s all.
Father’s a little bit older, but still
Ready to romp an’ to laugh with a will.
Here we are back at the table again
Tellin’ our stories as women an’ men.

Bowed are our heads for a moment in prayer;
Oh, but we’re grateful an’ glad to be there.
Home from the east land an’ home from the west,
Home with the folks that are dearest an’ best.
Out of the sham of the cities afar
We’ve come for a time to be just what we are.
Here we can talk of ourselves an’ be frank,
Forgettin’ position an’ station an’ rank.

Give me the end of the year an’ its fun
When most of the plannin’ an’ toilin’ is done;
Bring all the wanderers home to the nest,
Let me sit down with the ones I love best,
Hear the old voices still ringin’ with song,
See the old faces unblemished by wrong,
See the old table with all of its chairs
An’ I’ll put soul in my Thanksgivin’ prayers.

It Pays to Conform

 

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Have you ever gone into a neighborhood and noticed a few homes that stuck out like sore thumbs? One might be much fancier than the houses surrounding it while the other might be a "dump" in comparison to neighboring properties.

This scenario illustrates the real estate principle of "conformity." The main idea behind this principle is that a house is more likely to appreciate in value if age, size, condition and style are similar to, or conform to, other houses in the neighborhood.

How Does this Affect Buyers?
 
This principle of comparison also extends to buyers. By that I mean that if you make your property more "fancy" than others in your neighborhood, you end up limiting potential buyers. Of course, the opposite is also true – if you don't take care of your property, you'll definitely have fewer buyers looking at it.


Conformity is closely related to two other principles - progression and regression. In plain English, regression means that high-valued properties often tend to suffer when located close to lower-valued homes. Progression, on the other hand, means that lower-valued homes will often see increased value when found amongst higher-valued properties.

This formal principle leads the informal maxim: "Buy the cheapest property on the block!” The higher value of the homes around it will, in turn, make it more valuable.


As A Buyer, How Can I Use the Principle of Conformity to My Advantage?

I've already mentioned one method - buy the least expensive house in the neighborhood! Once you do that, improve it, and you'll get most ‘bang for your buck’ on your improvements. Of course, take caution when looking at such properties (often called "due diligence"). Spend the money on a real estate appraiser so you get an objective evaluation.

As A Seller, How Can I Use the Principle of Conformity to My Advantage?

As a seller, simply make sure that you maintain your home and lot on par with surrounding properties. Of course, if you've already done that, then invest in low-cost improvements such as new paint inside and out, landscaping, a professional cleaning job, etc. You might also want to add new carpets and/or new appliances if they are lacking.

Do it Yourself! ...if You're Sure You Can

All these actions will improve the value of the home in the eyes of potential buyers. If you're an experienced do-it-yourselfer, you should definitely tackle someimprovement projects since they can cost less than half of what professional contractors charge.

However, notice that I emphasized “experienced!” An amateurish job on, say, cabinets or roofs can actually reduce the value of your home. So, unless you're really, really good at it, leave major home remodeling projects to the professionals.


You Don't Want a House with TooMany Areas Needing Improvement

Avoid any homes that need major fixes such as roofs, foundations, siding, plumbing, electrical work, etc. The last thing you need is a "money pit" into which you keep investing money and get little or nothing in return. Be sure to seek out sound properties, like homes needing only minor fixes such as painting, cleaning, landscaping, carpets, new appliances, etc.

If you're a buyer interested in real estate investment, purchase a home in a neighborhood that's just beginning a revitalization cycle. That way you can be sure values will appreciate. 

You can also look for ‘under-improved’ properties such as single family homes which can be converted to residential income or commercial use, especially if such properties lie in the "path of progress;" meaning areas experiencing positive growth.

Want to learn more about buying a home at best value or selling it at maximum value? Then, call us today!

Facing the Current Real Estate Reality

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In today’s economy, despite things improving, we are still seeing countless Americans dealing with the aftereffects of the housing market crisis from just five years ago. What that means for many people is that they continue to struggle with keeping up on their mortgages.

Today, we want to talk about knowing and understanding the options that may be out there for you – and realizing before it’s too late that you can seek alternatives to foreclosure.

During a discussion with Attorney Michelle Adams of the Law Offices of Jill Pogach Michaels in Rothwell Maryland, a number of options and some very valuable insight came up with regard to the homeowners trying to deal with their homeownership crises. Specializing in short sales, settlements and loan modifications, the law firm is often met with frustrating circumstances that might have been avoided had their clients been informed properly ahead of time of their options.

Particularly at a time when homeowners approaching and crossing the retirement age are facing challenges in their real estate endeavors, Michelle urges that consumers be educated as much as possible about how to handle their upside down mortgage or financial strife leading to an underwater property.

Her very first and most important advice is for homeowners to never tap into their retirement funds to be able to keep up with their mortgages. This will only compound the problem. Further, without knowing the consequences of refinancing their property, many people end up unable to seek relief from government programs designed to assist them in the first place.

Accessing Retirement Funds Will Backfire

Addressing homeowners’ retirement funds first, it is critical for people that are 55 years and older to reassess their living arrangements rather than use their retirement fund to keep up on their mortgage. Not only will they hardly be able to make much impact on the loan but also the damage to their retirement fund will almost be irreparable.

Conversely, they should consult with a real estate agent and also an attorney to evaluate their loan modification and/or short sale options. There is a very good chance they may be able to sell their property rather than face foreclosure and be left with nothing to retire.

Refinancing Will Undo Any Chance of Government Relief

A program that is designed to assist homeowners struggling to deal with a property valued less than what is owed on it can be just the thing to help them stay afloat. The HAFA program is one of many that has helped millions of Americans. However in order to qualify the loan had to have originated prior to January 1, 2009. The moment a refinance is done on a property, the clock restarts and the homeowner will no longer be eligible for the Home Affordable Foreclosure Alternatives program.

Important to Assess Your Situation Before Taking Any Steps

Before moving ahead with anything, it is absolutely imperative that homeowners in difficult situations of property distress evaluate their situation and look at the bigger picture. Consider short, medium and long-term plans. Review where you are right now and then look at your earnings. What percentage is the mortgage? What happens upon retirement?

A very important component of knowing what to do next is to understand your goals and be able to identify the areas where you can engage in alternatives. A meeting with an attorney will provide some perspective and direction as to what to do next. Maybe filing for bankruptcy is not the answer. It could be that you may be able to settle through arbitration. Depending on whether or not your state is a judicial or non-judicial state, you may have limited options and may need to take more immediate action.

Through it all, it is important to keep in mind that the closer you get to retirement the less time you will have to recover from the situation. So before it becomes too late, even if you are current on your mortgage payments – contact us today for a conversation about your options.

Marc Cormier: 703.564.4026 or 301.660.6272 or www.help2ownahome.com

Things to Know Before Making An Offer On a Short Sale Property

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Many real estate agents these days don’t even like to write an offer for short sales because right now national statistics show that less than 40% of all short sales actually make it to the closing table. This is because of more than one reason. First, lack of financing largely contributes to offers on short sales not being successful. Also, lack of cooperation from either side is also a reason for unsuccessful short sales.

Short Sales Are Often Better Deals Than Foreclosures

But some of the best opportunities in this market are in short sales – so if you are a buyer, here are some things to keep in mind when considering making an offer on one of these properties.

Contrary to what many buyers believe there are much better deals to be had in short sale situations as opposed to foreclosures. The main reason for this is that in the case of a short sale, there is much more time involved and discounts on the price of the property work to accommodate that extra time.

Some Extra Preparation Is Needed, But Not Much

Another problem that arises often is when buyers’ real estate agents advise their clients not to do an appraisal and home inspection during the process of buying a short sale. These two aspects are critical for the purchase of a short sale and can make or break your decision in a huge way. If you are unwilling to do either of these, it might be time to consider whether you are a good candidate to buy a short sale.

The reason I suggest having a home inspection and appraisal done ahead of time for short sales is mainly because of the time commitment it takes to do such a transaction. It is far more beneficial to learn ahead of time of any issues with the home or whether or not your bank would approve your home’s financing based on its appraisal. To go through months of processing only to learn that there is a problem that becomes a deal breaker can be avoided by getting these things done in advance.

Appraisals make sense because one of the biggest reasons that short sales do not go through is when the bank’s valuation of the property does not line up with the market value of the property. A way to avoid this misaligned value of the home is to get an appraisal done in advance so you know what you are dealing with.

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For more information on this or other short sale related concerns, I invite you to contact us today at 703.564.4026 or 301.660.6272.

What Determines the Value of Your Home?

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Basically, a home's worth is determined by its market value. How is "market value" determined? Most often, it's figured by a comparison ("comp") with homes similar to yours in the surrounding area. So, if the homes in your neighborhood average, say, $250,000, then it's likely that the value of your property will fall in the same range. But market value is also determined by a number of factors including the following:

External Factors 
There can be several external factors influencing the value of your home. One is "curb appeal", or the first impression your property makes upon prospective buyers. A home that's in excellent condition on the outside will make a great first impression; a home in poor repair instantly loses its appeal to buyers. Other factors can include lot size, popularity of an architectural style of property, water/sewage systems, paved roads, sidewalks, etc.

Internal Factors 
The condition of a home's interior also has a huge influence on prospective buyers. When you've demonstrated "pride of ownership" and kept up the maintenance (quality paint, trim, molding, etc.), a buyer's interest will immediately perk up for the simple reason that they know your care and concern will result in less cost and maintenance for them. Other internal factors include construction quality, condition of appliances, size and number of rooms, heating/cooling type, energy efficiency, etc. 

Supply and Demand
"Supply and demand" simply refers to the number of homes for sale versus the number of buyers. When there are more homes than there are buyers, prices tend to be lower. When there are a lot of buyers chasing few homes, then prices tend to rise. In effect, supply and demand affects how quickly your home will sell. Location More than likely, you already know the old saying, "There are three main factors in real estate - location, location, location." While that's not the whole story, desirability is a big factor for home buyers. They may want to live in particular school district known for its education excellence…a great and safe neighborhood with rising property values…etc. 

But I Know My Home Is More Valuable Than a Lot of Comparable Homes in My Neighborhood 
Aren't Allowances Made for This? Definitely! Sometimes, it can be difficult to find homes exactly comparable to your own. So, dollar adjustments are made for the differences between your home and comparable properties. 

Where Do I Find Sales Comparison Information? 

The easiest source to access is your Realtor. After all, it's his or her business to know such information! But, there are also other sources you can tap into in order to get a complete picture of your home's value in comparison to others in your neighborhood. Here's an overview of them:

1. ) The Local Assessor's Office 
It's very likely that your local assessor will be able to provide the sales history of a particular house, neighborhood, or style of architecture. Many assessors also provide lists of recent sales which you can browse and compare to the assessment roll. Today, many municipalities provide local sales and assessment information online making it very easy to access. Check with your local government agency to find out if they provide this service. 

2.) Online Private Companies 
You can search for these companies using the Google search engine and the keywords "comparable home sales" or "comparable sales." Some companies offer free information; others charge a nominal fee. If you wish to get more specific, you can Google "real estate database" and type in the name of your particular state to get additional property information. 

3.) Your Local Newspaper 
It's likely that your local newspaper is a great source of specific real estate information. Look for quarterly sales reports in the real estate or business sections.

The Key to Getting the Price You Want (or Close To It) for Your Home
The key to getting the best value is finding and matching the right buyer to your home. And that's the job of the Realtor! He or she should work hard to qualify those buyers upfront so the right people are viewing your property! In other words, the Realtor should weed out "lookers" and other unsuitable buyers as a first step in working with you. See how I do that for you by calling me today!