By Jennifer Klein and Derek Sandoval
FHA mortgage insurance premiums rose on April 1, 2013. Placer County Association of REALTORS® YPN members Jennifer Klein and Derek Sandoval discuss exactly what has changed as well as what these changes mean for real estate professionals and those applying for a loan.
Jennifer Klein is a REALTOR® in Northern California who is experienced in short sales, investments, and property management. Connect with Jen at RosevilleAndRocklin.com, JenKlein.com, and @JenKleinSac.
Derek Sandoval has worked for Keller Williams Realty in Roseville, Calif., since 2009, and specializes in residential, REO, and short sales. Find Derek at www.dereksellshomes.com and dereksellshomes.featuredblog.com.
By Toby Boyce
The question on my local NPR station was simple enough: “Why do symphonies sound different when they are made up of the same parts?” The response was very eloquent and educated — I assume. It made as much sense as Pig Latin to me. “Well each one focuses on different things…”
I’m sure that musicians in the audience totally understood what the conductor was describing. But the “common person” was lost and tuned him out.
Are you doing that to your real estate clients?
How about that letter soup? Or the intricacies of how your company differs from the next?
Make sure you’re explaining things without their eyes’ glassing over. All they want to know is that you are a great agent who will handle their transaction like it is the only one you have.
However, you have to continually read your clients and provide them the information they need to make a decision without overwhelming them. How do we do it? Well, it can be quite natural — just shut up. Yes, I just told a group of REALTORS® to shut up, and know that is almost impossible for any of us to do so. But we need to just stay quiet and let the clients talk.
Before you start rattling off the details on an FHA 203K loan, how about finding out if they need to know about the 203K loan. Kind of embarrassing when you explain it for about five minutes and she says, “I know, I created them for years as a loan officer.” Did I build any rapport with them during that five minute session? Probably not, as they already knew and were debating whether to use satin or silk in the living room.
The point is, if you listen to your customers and provide knowledge where the gap is present, then you have done exactly what they’ve hired you to do: You are adding value to the transaction. And the next time they hear a real estate agent going on about “blah, blah, blah,” they’ll just tune him/her right out because they’ll know — you’ll provide the answer they need.
Toby Boyce, MBA, is a real estate practitioner with Keller Williams Consultants Realty in Westerville, Ohio. Visit his Web site: www.delawareohrealestate.com.
By Dave Robison
The Federal Housing Administration’s reserves are high, their defaults are low, and the average borrowers credit scores are 720. So why did FHA recently change premiums, etc.? Because of the annual audit.
FHA just had its annual audit that they reported to Congresss. Their worry was how the audit was going to turn out. They changed many guidelines recently in hopes it would help the audit. If it turned out well, they can show the market that government involvement in loans has been a good thing, as the private sector’s loans of no docs and stated income is what has caused the market to go down. Bad would mean that FHA’s reserve requirement was too low.
The reserve ended up decreasing by 0.5 percent.
FHA is striving to show that low down full docs are safe and they want to show the private market how to reduce risk and give more loans. We still have a ways to go during this downturn of the housing market. According to the audit FHA’s worst case scenario, they don’t expect to have their reserve requirement back up to 2 percent until 2014.
Right now there is another worry, though. Lenders making their own rules. Lenders aren’t loaning to individuals with scores lower than 700. FHA insures loans that lenders make as long as the loan package meets FHA’s guidelines. However, lenders have been setting their own guidelines even higher than FHA’s guidelines due to fear that they may be required to buy back bad loans. The big need in today’s market is to have lenders feel comfortable that they can give loans to individuals with lower credit scores. A big part of getting the market back is having these individuals with FICOS between 640 and 680 buy homes, including those individuals that are 1099.
To give an example, in 1999 the FHA only had 20 percent of market share and they gave more loans in 1999 to individuals under 700 FICO than all GSE’s combined (Government Sponsored Entities Freddie, Fannie, and FHA) this year.
NAR’s Federal Housing Policy Committee is continuing to work on keeping down payments at 3.5 and not increase to 5 percent. They also are working on keeping loan limits at current levels.
Dave Robison, known as “Utah Dave,” is a broker of Robison & Company Real Estate.
By Nobu Hata
The skinny: The Department of Housing and Urban Development is seeking public commentary through Aug. 14 on three “measures” that “reduce financial risk and preserve affordable mortgage financing for responsible consumers.”
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 6 percent to 3 percent. Allowing sellers to contribute up to 6 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 3 percent will bring FHA into conformity with industry standards. Continue reading »
By Michelle Flaherty
Has the incentive for first-time home buyers to break into the market just gone away?
My non-scientific market research has shown me that it has not. My buyer clients are still excited about the house hunting process, low interest rates, and attractive offerings at low prices – and I’m hearing the same from my peers.
In fact, the drop in interest rates over the past two weeks has created a long-term incentive even more attractive than the first-time home buyer tax credit – and *bonus* – it’s not costing taxpayers a thing.
How does this work? Consider the first-time home buyer using an FHA loan to purchase a $200,000 property. For the first five months of 2010, when buyers were snatching up tax credits like hotcakes, the typical FHA interest rate was 5.25 percent. Over the life of their loan, a buyer who locked in at 5.25 percent would pay a total of $412,621.13 in mortgage payments (including principle, interest, and PMI – not taxes or insurance). Now, with the 4.5 percent FHA rate, that same buyer would pay a total of $380,994.95.
The post-tax credit buyer will save $31,626.18 with the better rate, or $23,626.18 better than they would have done by going under contract in April, closing by the newly-extended Sept. 30 deadline, and collecting the $8,000 tax credit. The caveat, of course, is that their monthly savings only totals $87.85, so they would have to remain in their home for 7.6 years to collect $8,000 worth of savings. But after that, they’re doing better every month!
Michelle Flaherty is an associate broker with Prudential Northeast Properties, serving Greater Portland, Maine. Visit her Web site at www.michelleflaherty.com.
By Nobu Hata
With the down market and the inevitable mass exodus of “those” loan officers, you’d think we could rest easy knowing that the loan officers left would be – for lack of a better word – decent.
Holy Hannah, would we be wrong.
In the last couple weeks, I’ve had various buyers shop their loan around, including those using FHA. What I thought were set guidelines and fees isn’t what it seems. One particular buyer of mine asked for Good Faith Estimates based on the same home, price and mock closing date, from each of the loan officers he’d met with who’d pulled his credit, on my recommendation. Lo and behold, one origination fee was $1,100 more than the other. The rest of the meeting was an eye-opening study of mortgage v. mortgage.
Now, I’m not going to get into specifics of big bank versus broker, nor the merits and drawbacks of each. But what I will say is that there’s no better time to brush up on the new GFEs and fees associated with them. Fees and guidelines for all types of loan products are changing at a lightning pace, and while it’s largely up to our clients to perform their due diligence, it’s up to us to impart some insight. Continue reading »
By Laura Rubinchuk
When I heard about the new FHA DELRAP/HRAP guidelines for condo financing, my gut reaction was, “Well, I might as well go find another job.” Some of the subjective guidelines for the new approval process will greatly affect my market:
-Proximity to a noise (i.e. busy streets, highways)
-Proximity to a gas station
-Percentage of commercial space
And the list goes on, and on… For those of us in a Metropolitan/Urban environment, the whole point of condo living in the city is ease of travel and lifestyle. In the D.C. area, we have numerous major highways that lead into the District, the metro system, etc. and the majority of our high-rise condo buildings are located within blocks of these things.
So tell me how it makes sense to take buildings we’ve been selling for years with spot-approved FHA loans, taunt first-time buyers or other qualified buyers who have the minimum 3.5 percent down-payment, and tell them that because it’s the first of the month of this year, now they have to wait WEEKS to months for a green light on the home they fell in love with, if the seller is willing and/or able to wait at all!
Again, I ask, how does the economy continue to grow if the FHA puts the cabash on condo financing and eliminate the pool of buyers who don’t have the minimum 10 percent down-payment but qualify for the loan? Even funnier, why is the HUD website of approved condo projects only searchable from Monday-Friday, 8 a.m.-9 p.m.? Does the site need beauty sleep?
I don’t intend to start a political debate, but I can’t help wondering if the underlying reasons are a bigger concern? Is the FHA running out of money? Are they trying to keep out some buyers so some remain for later in the year?
By Heather Soldonia
In the current real estate market I have heard both brand new practitioners and veteran brokers express that they are resorting to some basic prospecting strategies and among those is… open houses.
When I first began working as a REALTOR® my broker advised me to go to at least 10 open houses “to learn what not to do.”
Indeed, I had some interesting interactions. The most noteworthy was at a brand new condo development. I was asked to complete an information card upon which they posed the question, “What reasons are you looking to buy?” I wrote, “First time homebuyers programs.”
Apparently that wasn’t a response they were interested in because the sales agent immediately informed me that the developer is absolutely not accepting less than 10 percent down, which would exclude the 3.5 percent FHA program. Taken aback by his brazen manner, I took a moment before replying, “This is an affluent area and you would be surprised how many people my age have parents who are happy to supplement down payments so that is not something you need to concern yourself with; that’s simply one of the reasons I am looking to buy.”
Around this time, a couple (appearing to be in their 60s) had also come into the sales office and my sales agent informs the receptionist that she doesn’t need to call a different sales associate to help them, he would be happy to tour them… with me in tow. Continue reading »