Changes to FHA Loans - What It Means For Tucson Homebuyers
September 13, 2008
Today, July 14th, changes go into effect regarding FHA financing.
Before today, there was a flat up-front fee when you got an FHA loan - called the mortgage insurance premium (UFMIP - UpFront Mortage Insurance Premium). It was set at 1.5% of the loan amount, and most people just added that on top of the loan amount, they financed the MIP.
Also before today, there was a monthly charge, at 0.5% annually, called mortgage insurance (or MI) that an FHA home buyer paid. So on a $200,000 loan: 0.5% of that is $1000, then divide by twelve as that’s an annual figure, and we get an $83.33 MI payment per month, added to your monthly mortgage payment.
This is not the case anymore. As of today, pricing will be risk-based. That means the bigger risk you are as a borrower, the worse your credit is, the more you’ll pay. Because people that are bigger risks tend to default on the loans more, so they get charged more to get a loan.
Now, the up-front MIP will range from 1.25% to 2.25% - remember, that’s the one time fee paid at closing that most people just roll into the loan amount. On a $200,000 loan, that means the up-front MIP would range from $2500 to $4500.
The monthly mortgage insurance will vary to, ranging between 0.5% and 0.55%. That amount will be determined by the loan to value ratio - that is, it will be determined by how big your down payment is.
My friend Shailesh is a lender up in the Phoenix area and has a good explanation of the new FHA guidelines, as well as more information on how first time buyers can get a reduction in the amount of up-front MIP they have to pay.
So what does that mean for the local Tucson home buyer? Well, if you’re getting an FHA loan, it may cost you more to buy a home, depending on your credit score. If you’ve been approved for an FHA loan in the past couple months, it may be time to head back in for another chat with the lender, to see what kind of pricing you’ll have for that FHA loan.
Keep Your Eyes Open
September 13, 2008
Question from a client today: “Okay Kelley - what do you see here that I don’t?”
You go into a couple thousand homes, you start to see things, little red flags, small oddities that set off alarms in your head.
This is a personal favorite from a couple of weeks ago. This was just off the driveway to a newly constructed home in the middle of an unsubdivided area in Central Tucson.
That’s 3 water meters. For a single house. Something not quite right there.
Part of an agent’s duty is to walk through the house with eyes wide open, to notice those little things, to bring them up to their buyers and sellers, so that they can make good decisions. While agents aren’t home inspectors or a trade specialist like a plumber or electrician, we do have a lot of experience with homes, and often spot little indicators of what may or may not be a big problem.
Like spotting 3 water meters on a single house. Or termite tubes on a foundation at night using only the illumination from a phone. Not to brag or anything…
Patience and Buying A Lender Owned Home
September 13, 2008
Today, there are 67 listings marked as “bank owned,” 110 marked as “lender-owned,” and an additional 63 listings marked as “REO” in the Tucson MLS.
The name of the game with lender owned homes: patience. Banks, in general, don’t care about your timelines.
As long as there’s no bidding war for the home - as can happen when the lenders price the home to sell and FAST - then here’s how this usually plays out:
1. Submit an offer to the listing agent, who then submits it to the bank.
2. Wait. Sometimes wait much longer than the expiration date on your offer.
3. The bank sends back some addendums for you to sign, and may counter offer some of the terms of your offer. There are many, many pages of addendums, in which you give up a plethora of rights, agree to numerous bank-specified terms, and generally agree to abide by their rules, where they have lots of rights and abilities and you have none.
4. You deliberate. You consider. You sign the addendums and send ‘em back.
5. You wait. Again. Deal’s not a deal yet until the bank signs it.
6. The bank signs the addendum and sends it back via the listing agent. Sometimes, the bank even deigns to send it back within a day or two of them executing that addendum. So that they only eat a few days of your limited inspection period.
You want to buy a lender owned property? No problem. But be prepared to be patient. Some banks respond in a day or two, some respond in a week or two.
Actually, that’s nothing compared to the wait times for Bank responses on short sales. But that’s a story for another day.
Photo via Flickr, courtesy of zoomcityzoom
Using All Sources To Value A Home
September 13, 2008
More and more, as the local MLS becomes merely one option as a place to list your home for sale, it becomes important to check other sources when you’re trying to value a home for sale or find comps to write an offer.
Especially in the high end market, many of those sales happen from word of mouth, are not listed in the Tucson MLS, or may have been listed in other services where it can get more exposure to that high end buyer.
In the regular folk price range, there are always sales that aren’t entered into MLS by the agent, or were sold by owner.
If we want to get a full picture of the value of a property, I think it’s important to check all sources - not just the local Tucson MLS.
One of those important sources is the Pima County Recorder. Hopefully, anytime a property transfers ownership, that Buyer and Seller had the sale and the deed recorded. Luckily, I have pretty easy access to that through a system called CRS, which aggregates public data from sources including the recorders office. Now, it may take a little bit of time for CRS to get updates from the Recorder’s office, but usually, I can see recorded sales within a few weeks of them happening.
Because Life Changes
September 13, 2008
There’s a part of our residential resale purchase contract that says:
Taking title may have significant legal, estate planning, and tax consequences. Buyer should obtain legal and tax advice.
I was in a class the other day and we were reviewing ways owners can hold title to property. The instructor went through some scenarios that were intended to drive home the point that people really need to think carefully about how they hold title.
For example.
Let’s say two people get married. Let’s say the husband has kids from a previous marriage. So the man and woman get married, buy property and hold title as Community Property with Right of Survivorship, and they each make out a will that says whichever of them dies last will leave the property to his kids from the previous marriage.
But then the husband dies, the property is transferred immediately to the wife because of the right of survivorship, and sometime after, Wife marries a man with whom she has kids. And rewrites her will to pass the property to her kids, and not the first husband’s kids. Who are now left with nothing.
Or how about this:
A husband and wife buy a property and hold title as Joint Tenants, which comes with a right of survivorship. Things go badly in their marriage, and husband has a mistress on the side. Husband gets sick, and before he dies, he deeds his share of the property to his mistress.
So now wife and mistress have equal ownership - and equal right to posses - the same house. I’m sure that’s going to work out well when mistress knocks on the door and demands to move in, according to her rights as an owner.
And I know thinking about how to hold title to a property isn’t the most fun thing on earth. It’s mostly about what happens when you die, or when your life changes drastically. But it is a decision that deserves some thought. Since I’m not a lawyer or an estate planner, I can’t really give you advice about how to hold title.
But - If you’d like to talk to an expert about your estate and the best way for you to hold title for your specific situation, I’d be happy to refer you to one!
Also, Title Security has a document about some common ways to take title.
We Don’t Do No Stinkin’ Surveys
September 13, 2008
I work with a lot of home buyers who are relocating to Tucson, and that have purchased homes in other states. In many of those other states, I’m told, it is customary to have a survey when you buy a house.
Not so in Tucson.
You might get a survey if you buy a parcel of land, certainly, but not usually for residential properties.
This has created some interesting situations in terms of our real estate transactions.
For example, in many older areas of town, people tend to put up fences or sheds where the old fence used to be. Which may or may not have been within the property line. I’m willing to bet that there are subdivisions where every single home has a fence or other structure that encroaches on the next persons lot. And that person’s lot has something that encroaches on the next person’s lot, and so on down the line of homes.
So then one person comes along and gets a survey, and discovers their neighbor’s garage sticks out one foot over the property line. So then person A goes to neighbor B, and then neighbor B goes and gets a survey and finds out that neighbor C’s shed sticks out 16″ over his property line. You see where I’m going with this.
There’s something called a prescriptive easement, where - within certain rules - someone else can claim the right to use part of your property, just by using that part openly long enough. Like, say, having a garage partially over the property line for the last 10 years. Whether you knew it was or not.
But if you really want to know where your property line is for sure, you better get that survey. Just know that it isn’t typical around here, and it could take a couple of weeks to have it done, so we’ll need to plan for that.
Photo via Flickr, courtesy of AndyMc73
Timing the Appraisal
September 13, 2008
I’ve been having more discussions than usual with my clients about when to order the appraisal.
Usually, once the lender orders the appraisal, you need to pay for it, somewhere around $350-$400. That’s only fair, if the person does the work, they get paid for it, whether or not you buy the house.
A couple years ago, we wouldn’t order an appraisal until we were through inspections and repair negotiations - no sense in incurring the appraisal charge until we know if the house is in good shape and we know you’re going to buy it.
In today’s real estate market, however, sometimes appraisals are coming back marked as a declining market, which means you may have to pony up additional down payment. This is something we might want to know sooner rather than later.
More often than not, my clients are deciding to have the appraisal done during their inspection period. Yes, the incur that cost without having gone through repair negotiations, but at least they know sooner if the appraisal will come in fine or if it will cause problems.
Just like the cost of inspections, it’s what you pay as a home buyer, basically as risk mitigation. Better to pay a bit up front and find out for sure if the property is sound and that you can get appropriate financing, then not pay those things and end up with a lemon.
Infuriating A Lender
September 13, 2008
I believe I really infuriated a lender yesterday. It wasn’t my fault, really. If my clients bring me a Good Faith Estimate where the lender charges are twice what is typical with an unimpressive interest rate, you’ve got to expect me to challenge that. And when I send my clients go back to the first lender with a reasonable Good Faith Estimate from one of my lenders, and the first lender refuses to match it and insinuates my lender is going to add hidden fees at the closing table, starts using scare tactics, causing my clients leave the first lender to go to the second one… well, they didn’t like that much.
Too bad. My duties are first to my client, not to their lender. Don’t be charging my buyers crazy extra fees.
The Chances A Short Sale Will Actually Sell
September 13, 2008
I’ve got a buyer thinking about making an offer on a short sale property.
Remember, a short sale is where the owner owes more on the house than they can sell it for. They’re most often incredibly long, frustrating sales, and often, the sales never actually complete. You have to get the lender to agree to take less than what is owed, and, well, I don’t want to go into a huge short sale discussion now, but know that they’re often ugly transactions.
On the plus side, if the listing agent deals often with short sales, knows that they’re doing, then you’ve got a better chance of actually purchasing a short sale home. That’s a better chance, but still no guarantee.
Today, there are 665 single family homes in the Greater Tucson area marked as a short sales in the Tucson MLS. In the last 6 months, 139 disclosed short sales have actually sold.
Which makes the chances of a short sale closing roughly one in five.
Last time I ran that calculation back in March, it was one in ten.
Progress?
This Is Why You Always Read The Prelim
September 13, 2008
As part of buying a home, you’ll get a big packet of stuff from the Title company, with a preliminary title report. It’s very important that you read through the stuff the title company sends you, as the title report can uncover some interesting things. Such as….
See those words circled in blue? “Well agreement.” Ah, what well? We have no information about a well on the property.
Also this: see that blue arrow pointing to that long rectangle? That long rectangle is a utility easement, 10 foot wide, where the electric company has the right of way to that strip of land on the parcel, a strip where the owner can’t put a building or a fence or otherwise obstruct the electric company’s access.
Now, I’m no surveyor, but I’m going to give you one guess as to where it appears house is, relative to that easement…
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