How long do I have to wait to buy again?

The question comes up..increasingly so with prices and interest rates so low.  How long after a foreclosure or short sale do I have to wait before buying?  Here’s the answer:

FHA Waiting Guidelines:

·          Bankruptcy – You may apply for a FHA insured loan after your  bankruptcy has been discharged for TWO (2) years with a Chapter 7  Bankruptcy.

·         You may apply for a FHA insured loan after your  bankruptcy has been discharged for ONE (1) year with a Chapter 13  Bankruptcy

·         Foreclosure – You may apply for a FHA insured loan THREE (3) years after the sale/deed transfer date.

·         Short Sale / Notice of Default – You may apply for a  FHA insured loan THREE (3) years after the sale date of your  foreclosure. FHA treats a short sale the same as a Foreclosure for now.

·         Credit must be re-established with a 640 minimum credit score

VA Waiting Guidelines:

·         Bankruptcy – You may apply for a VA guaranteed loan TWO (2) years after a Bankruptcy

·         Foreclosure – You may apply for a VA guaranteed loan TWO (2) years after a foreclosure

·         Short Sale – You may apply for a VA guaranteed loan  TWO (2) years after a short sale, unless it was a VA loan then restrictions  apply

·         Credit must be re-established with a minimum 620 credit score

Conventional Waiting Guidelines (Fannie Mae):

·          Bankruptcy – You may apply for a Conventional, Fannie Mae loan  after your bankruptcy has been discharged for FOUR (4) years.

·          Foreclosure – You may apply for a Conventional, Fannie Mae loan  SEVEN (7) years after the sale date of your foreclosure.  Additional  qualifying requirements may apply,

·         Short Sale / Deed in Lieu of Foreclosure – UPDATED  12/16/11  Currently treated the same as a foreclosure with a waiting  time of SEVEN (7) years before you can buy again using a Fannie Mae  conventional home loan.

·         TWO (2) Years up to Maximum 80% Loan to Value | 20% Down Payment

·          FOUR (4) Years up to Maximum 90% Loan to Value | 10% Down  Payment – Subject to Private Mortgage Insurance underwriting guidelines.

·         SEVEN (7) Years above 90% Loan to Value | with less  than 10% Down Payment – Subject to Private Mortgage Insurance  underwriting guidelines.

·         Credit must be re-established with a minimum 660 credit score.

Fannie Mae has reduced waiting periods in cases of extenuating  circumstances – The death of a primary wage earner seems to be the only  one I have been able to identify up to this point.

Preparing to Buy Again after Bankruptcy, Short Sale or Foreclosure:

You should begin looking at your credit at least six (6) months  before you are ready to buy again.  Quite often there are things left  over on your credit report that can delay your ability to qualify.

With  a little head start, you can get your credit in line, qualify for  financing and buy again in the lowest priced real estate market that we  have seen in years!

Call me for help!  There may be  things that yo can do short circuit the process even further

FHA to make changes

In the latest example of government acting at cross purposes with itself, FHA is set to make changes to its program. My comments after the break. Here are the changes, which will become effective 8/15 unless modified”

1. Update the combination of credit and down payment requirements for new borrowers. New borrowers seeking FHA-insured financing will be required to have a minimum FICO score of 580 to qualify for FHA’s flagship 3.5 percent down payment program. New borrowers with credit scores of less than a 580 will be required to make a cash investment of at least 10 percent. Borrowers with credit scores of less than 500 will no longer qualify for an FHA-insured mortgage.

2. Reduce allowable seller concessions from six to three percent. Allowing sellers to contribute up to six percent of the home’s sales price to offset a buyer’s costs exposes the FHA to excess risk by potentially driving up the cost of the home beyond its appraised value. Reducing seller concessions to three percent will bring FHA into conformity with industry standards.

3. Tighten underwriting standards for manually underwritten loans. When using compensating factors in the underwriting process, lenders will be required to consider those factors which are the best predictive indicators of loan performance, such as the borrower’s credit history, loan-to-value (LTV) percentage, debt-to income ratio, and cash reserves.

Of these 3, the one that makes no sense to me is #2. If the appriasal is a good one, then the borrower is not buying above the market value range. And decreasing the amount of seller concessions allowed right on the heels of an increase in DP requirement will lessen the pool of potential buyers, damaging the market at exactly the wrong time. If it is necessary, strengthen the appraisal process further!

Its fascinating to watch the noises being made within FHA to once again allow seller funded down payments programs–exactly the opposite of what they are doing with these new rules.

When goverement messes in the private secotr, it’s messy…

11 Things to consider when buying that new home!

BUILDING NEW?—11 Things to Consider

It is not an exaggeration to say that your financial future is at risk. Many of the current foreclosures and short sales are occurring in developments built since 2000—because buyers did not take these things into consideration:

1) What’s the true cost of that new home?
There are many, many costs that you will have the first couple of years of ownership. These items will have to be paid for in cash as they occur after buying the home. In an existing home, these items are already included in the price and thus can be financed. Items like landscaping, window coverings and fencing can add up to thousands of dollars. Even little items like curtain rods can add up to a lot of expense.
2) Construction time frame
Building a new home can easily take twice as long as projected and not even be the builder’s fault. Weather, labor shortages, and material shortages are not controllable. Now that new construction activity has peaked and fallen off, most builders are laying off staff and are not able to meet deadlines they formerly could.
3) “Special Financing”
Taking advantage of the special financing offered by the builder might be a huge financial mistake. There are two problems here: First, that special financing often involves bad loan products that are highly speculative. The low initial payment turn into a financial nightmare several years later when the “teaser” rate expires. And second, the cost of this financing is built into the sales price of the home, but does not create permanent market value. So the new construction buyer has paid more than market value for the new home and finds themselves upside down when trying to sell later. The only thing “Special” about this financing is that it helped the builder sell you a home.
4) Quality of Construction-
Many times an existing home is of a much higher construction quality than a new home in the same price range. There has never been a perfect new home built, due to the complexities of the construction process. The only question is which mistakes will be made on your home, and how serious will they be? An existing home has “settled out” in this regard. And sometimes, new building techniques designed for cost control or ease of construction are proved to not be such a good idea: PVC, improper EFIS installation, UFFI insulation and Aluminum wiring are just some examples of where hard lessons were learned from experience.
5) Market Value-Long Term
This is very important. Market values in a new development do not settle out in relation to the rest of the market for up to 10 years after the plat is built-out. Declines in market value often occur during this period. Values long term are determined mostly by outside factors and are beyond the control of the homeowners. When a subdivision is new and in “growth phase” it can have the “Wal-Mart” effect—that is, it creates its own demand even if it is not located in the best spot with regard to future demand for housing in the area. Sometimes new developments-for cost reasons-do not even include the basics of long term value. For example, laying out streets in a pure grid pattern may net the developer an extra couple of hundred thousand dollars in profit, but does not lend itself to making a desirable place to live.

6) Market Value-Short Term.
Also very important. If a buyer will need to sell in the short term (less than 5-7 years), there is a huge risk that they may find themselves upside down. New subdivisions have appeal to people whose jobs are more transient, as they consider buying a new home to be a safer choice in an area they are not familiar with. A new subdivision may sell out within a couple of years- by definition there will many homes on the market at the same time several years later. Add to this the fact that the builder is probably still down the road offering similar floor plans with special financing and it’s not a pretty scenario.
7) Over-improvement
Be very careful here! Builders will sell you “upgrades” which are hugely profitable for them, but put you at risk. It is tempting to add on those nice features because you can include them in your mortgage just remember that those nice features may not add value. When you sell, trying to sell your garden tub and marble fireplace for the same price as your neighbor’s bigger home will not work—you may lose every bit of what the item cost you. And there is simply no way to know at the beginning which improvements will add long term value and which ones won’t. In a buyer’s market square footage wins against amenities nearly every time.
8) Style.
Will the style of the home still be in vogue in the future? If not, it creates something called “Functional obsolescence” which is fancy way of saying “Loss in potential value”. Examples abound of trends that have come and gone in style, floor plans, and siding. We’re seeing market resistance to some of the “vinyl villages” as one example of this. Buyers driving into a plat and looking down a long street of homes all with the same color vinyl siding react very negatively.
9) Potential Subdivision issues
If you are one of the first to buy in a development you take on a lot of additional risk. Will the builder be able to complete the development or will they sell the remaining lots to another builder who will build much cheaper homes? Will the homeowner’s association get off the ground? And the first person to violate the covenants, restrictions and “style” of the area is the developer when trying to sell the last few lots.
10) Be sure to understand what you house payment will be in a few years
Your initial house payment almost never includes the full taxes on the property—I have seen payments go up by as much as $500 per month a year or two after the home is built. And unless you are paying attention at the time, you may not find out until your escrow account is way behind—and that amount also must be made up. In addition be sure to understand fully what the terms of your financing are. Tomorrow does come.
11) You have NO representation in the decision!
While most new homes salespeople are nice and they are honest, please remember that their interest is opposite of yours. They not only are not your agent, they are employees of the builder! And even if they tried to look out for your best interest, they are not in a position to do so—they have no market experience to help you evaluate all of your choices.

Despite all of this, can that new home still be a wise choice for you? Of course it can! This is just cautionary–there are many positives that are not listed here. For example, it is probably true that never in history have better new homes been built for the money. Each of these 11 items were drawn from what I have seen buyers experience. The advice of an experienced, competent professional agent who represents you is always advised. And since the builders almost always pay the cost of the agent without increasing the cost of the home to you—(they consider it a marketing expense no different than paying the salesperson who works for them), there is no reason not to call me first!

This month in Real Estate–Video Edition July 2010

I was wondering when….

I was wondering when we were going to start to hear it.  The tax credit for buying a home delayed it by months, I think.  And we get so used to one way of thinking that it takes awhile to think differently. 

But lately, buyers are asking the question…shouldn’t I wait to buy?  Prices are falling and if I just wait, I will get a better deal.  Maybe next year!

There is nothing wrong with that line of thinking in general, given the state of the housing market right now.  But it ignores one important factor–interest rates.    Interest rates are at record lows..lower than they have been since records started being kept in 1971, and you would probably have to go back 60 years to find them this low.

So I got to wondering… How much more could prices fall?  5%?  10%?  And how should interest rates affect a decision to purchase?

The brightest spot for Dayton when compared to other areas is that our home  values have done much, much better than most.  The 2nd Quarter Brookings Institution Metro Markets study shows that despite the Dayton area being 91st out of 100 areas in employment vs our peak, our house price index was 37th.   Why?  This is simply because we did not appreciate crazily like many markets did in the mid 90’s.  When you read about places like Phoenix losing massive value, you have to remember that they are in part just giving back some of the unreasonable appreciation they enjoyed in prior years.  So, how much more can our prices drop?  Time will tell, but it does not seem prudent to expect they can go much lower..

But let’s assume that next year, prices fall by 10%,  but interest rates rise by 1%..to the mid 5’s.  Incredibly, a buyer’s monthly mortgage payment remains about the same as it would had they bought this year.  And the extra interest that they would pay over the life of the loan would more than offset the extra money they paid for the house.  Should this massive government spending cause inflation to kick in and interest rates rise more than that, buyers will rue the decision to not buy now.

Moral of the story?    You can’t time the market.  Buying now may be a wise choice for you and there is not much downside risk to not doing so.  Buy a good home at a fair value in a good area–that will protect you against any downside risk.  And always remember–you are not buying the market.  You’re buying one property and can judge whether or not you are getting a good buy.

REO inventory swells again | Inman News

The number of 90 day delinquent loans shrunk slightly last month, but REOs went up again:

REO inventory swells again | Inman News.

May home sale stats–Dayton area

A couple of items of note here:

1) This obviously reflects the impact of the tax credit.  A 40% increase over 2009 is significant and has been trumpeted all over the media, however 853 sales in the month of May for 2009 is hardly anything to write home about.  Still, a good month.

2) The median sales price went up slightly, but the average barely changed.  Bank owned properties still make up a huge part of the market here and the upper end of the price range did not move as a percentage of total sales as one might expect.  Many builders had a better spring than expected–this should reflect in the median sales price over the coming months as those homes close.

Here’s the release from DABR:

Dayton Area Home Sales for May 2010

Single-family sales soared to a total of 1,200 in May, the most since August of 2007, and represented over a 40% increase compared to the 853 sales reported in May of 2009. This robust activity brought the year-to-date total for 2010 thru May to 4,324, compared to 3,712 last year during the same reporting period, an increase of 16.5%.

This activity produced a total dollar volume for the month of $152,359,114 and an average sale price per unit of $126,966, a slight .4% increase over last May’s $126,462. This continues a streak of 11 consecutive months of year-over-year increases in the average sale price. The median sale price for the month was $115,000, a 4.55% jump over last May’s figure.

Year-to-date sales volume has now reached over $524.7 million in single-family sales activity. The average sale price thru May stands at $121,356, a healthy appreciation of 9.2% compared to $111,148 in 2009. The median sale price thru May stands at $107,000, compared to just $90,000 last year, a considerably higher 18.9% year-over-year increase.

Single-family listings submitted during the month were down for the first time this year. The 1,890 listings added were 8% fewer than the 2,055 last May. For 2010 to date, however, 10,484 listings represent a 9.3% increase over the 9,590 submitted through May 2009.

Overall single-family inventory at the end of the reporting period showed 8,980 properties available for sale, up from 8,594 a month ago. However, the supply has slid to 7.5 months of properties for sale based on May’s very rapid sales pace, compared to a supply at the end of April of 8.3 months. Last year, at the same time, the inventory was at a nearly identical figure of 8,922, but the supply was much higher at 10.4 months, with 347 fewer sales than during this May.    

MAY 2010 – MLS SINGLE-FAMILY SALES SUMMARY
	2010	2009	% Change
Single-Family Listings	1890	2055	-8.02%
Solds	1200	853	40.68%
Total List Price	$159,514,736	$113,871,188	40.08%
Total Sale Price	$152,359,114	$107,872,357	41.24%
% Sale/List Price	95.51%	94.73%	0.82%
Median Sales Price	$115,000	$110,000	4.55%
Average Sales Price	$126,966	$126,462	0.40%

Tax credit deadline extended!

Finally Congress did the right thing and extended the deadline to close on a home that must have been purchased prioir to 4/30/10.   There’s been a lot of confusion around what got exteneded.  You must have been under contract prior to 4/30.  If you have not yet closed you now have until 9/30 to close the purchase:

Tax Credit Closing Deadline Extended

After a close brush with the deadline, Congress has passed an extension of the Homebuyer Tax Credit closing deadline, the Homebuyer Assistance and Improvement Act (H.R. 5623). The extension applies only to transactions that have ratified contracts in place as of April 30, 2010 that have not yet closed.  The legislation is designed to create a seamless extension. The new closing deadline for eligible transactions is now September 30, 2010.  There will be no gap between June 30 and the date the President signs the bill into law. NAR worked closely with Congressional leaders on both sides of the aisle to enact this important legislation. Extending the Tax Credit Closing deadline will help provide additional stability to real estate markets across the nation.

For additional information on the extension, visit www.realtor.org/government_affairs