Buying a condo with an FHA-backed loan

Most home sales go through without a hitch but there is always a chance that one will hit a snag somewhere along the line. Many of these are minor irritants, some are downright disappointments.

Few of the latter compared to falling head-over-heels for a condo only to learn that the community isn’t HUD-approved so you can’t use your FHA-backed loan for the purchase.

In reality, if you’re working with the right real estate agent, this shouldn’t happen; he or she should be checking the condo complex’s approval status before even showing you the home.

When it does happen, however, it typically leaves the buyer dazed and confused. Let’s take a look at what FHA requires of condo buyers that differ from its single-family home requirements.

The basic FHA requirements

Lenders have a tough job, especially when it comes to buyers using an FHA-backed loan to purchase a condo. Not only must it determine if the borrower is a decent credit risk, but it must also take into account the risk of loaning money for a home that is governed by a homeowner association. And, regardless of your creditworthiness, if the HOA has problems, the lender and/or FHA will deny the loan.

Some HOA problems that FHA frowns upon include:

  • A high number of rentals in the community. FHA rules demand that, at a minimum, 50 percent of units must be occupied by the homeowner. In 2016, HUD changed the minimum to 35 percent, under certain circumstances. Learn more about those circumstances at HousingWire.
  • The homeowner association fee delinquency rate must be lower than 15 percent of the budget.
  • No investor/entity may own more than 50 percent of the units in the community, but only if half of the units in the community are owner occupied. So, if Warren Buffet or some random Saudi Prince decides to snatch up 52 percent of the homes in a condo community, the complex will be denied HUD approval.
  • FHA will not guarantee loan repayment on a condo community that is in litigation. Once the litigation is settled (which can take years), the community can be considered for certification. Litigation examples run the gamut from the HOA suing the developer for construction defects to the famous cases of homeowners suing the HOA for the right to fly an American flag and the proper disposal of pet waste.
  • The HOA’s cash reserves must be equal to or in excess of one-years’ worth of the association fees. FHA wants to see that the HOA has sufficient reserves to cover expensive repairs or replacements.

This is by no means the entire list of requirements but represents some of those we most frequently come across. They are quite demanding – so much so that in 2013, about 60 percent of U.S. condo complexes seeking certification were denied, according to John McDermott of National Mortgage News.

Sure, it’s tedious, but the FHA process has advantages

Any home purchase requires a certain amount of due diligence. The buyer’s legal duty is to thoroughly inspect the property and the paperwork that goes with it, before going through with the purchase. Typically, the onus for this due diligence is on the buyer, but in the case of an FHA-backed loan for a condo, HUD does a lot of it for you.

Yes, you still need to read and understand every word on every document included in the HOA documents provided to you before you close on the home. While you’re trying to wrap your brain around covenants, conditions, and restrictions, however, FHA will be poring over the financial solvency of the HOA. While they may just find something distasteful in these documents, knowing that they’re scrutinizing the HOA’s budget and other financials should bring you peace of mind.

Becoming HUD-certified isn’t a one-off task, either. The association must reapply every two years.

Finally, owning a home in an HUD-certified community makes it easier to sell down the line.

Avoid disappointment

If you’re toying with the idea of buying a condo with that FHA-backed loan, do yourself a favor and check out HUD’s list of certified communities. Then, avoid looking at those that aren’t on the list. You’ll find the online database, here.

Posted on May 17, 2017 at 12:38 AM
Will Thomas | Category: first time home buyer | Tagged , , ,

4 Tips To Get That Home Sold ASAP

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When homeowners ask how to get a home sold, there is typically more to the question. For instance, some really want to know how to get it sold quickly, some are wondering how to sell a home to get more money out of it while others have a home languishing on the market and just want to know how to get the thing sold.

There’s no mystery to getting a home sold; it all starts with basic real estate principles and practices.

Timing

It’s important to know the current trends in your local real estate market before putting your home up for sale. Is it a buyer’s market – where there are more homes available than buyers? Or is it a seller’s market, with few homes available and lots of buyers?

Your local newspaper most likely covers your regional real estate market but this is also information you can obtain by asking your real estate agent.

This information is important for several reasons:

• If you can afford to wait to sell your home, the current market may be the deciding factor as to whether you sell it now or wait.

• It helps you price your home appropriately.

• It gives you an idea of what to expect during the time the home is on the market.
Another aspect of timing the sale of your home is the season. Home sales are seasonal and the ideal time to sell the home is in spring. This doesn’t mean, however, that homes don’t sell at other times during the year, even in the dead of winter.
In fact, although fewer homes are listed and sold in winter than in spring, the likelihood that you’ll sell your home is higher in the former than in the latter.

Price

The number one reason a home sits on the market and doesn’t sell is price. To make matters worse, sellers of overpriced homes typically reject initial offers because they think they are too low, when, in reality, they are most likely close to the market value of the home.

In a buyer’s market, it’s even more important to price your home competitively. If you choose the right real estate agent, your list price should be very close to the home’s true market value. It’s up to you, then, to either lower it a bit to create more interest or to overprice the home and risk eventually having to drop the price.

Condition

It almost sounds trite in today’s real estate market to mention that a home needs to be cleaned and decluttered before putting it on the market. While the advice is common, it’s still very good. A clean home with maximum curb appeal will put your house above the competition.

Make repairs to anything that obviously needs it. This means dripping faucets, loose banisters, cracked windows – anything that a buyer will notice. These little things make it appear that the home hasn’t been maintained – something no buyer wants to take on.

We can discuss larger repairs and whether or not they should be tackled.

Realtor

Your Realtor can make or break the deal. Keep that in mind when determining who to hire to assist you in the sale of your home. This is not the time to hire that friend of a friend or your Aunt Martha.

Choose your agent carefully and then work as a team, following up with one another frequently throughout the process.

Getting your home sold requires, overall, patience. Take your time with each step in the process, ensuring that nothing falls through the cracks. Listen to the advice of your real estate agent and you’ll soon be on your way to the next phase of your life.

Posted on November 8, 2016 at 3:03 PM
Will Thomas | Category: Uncategorized | Tagged , ,

Your Guide to The VA Loan

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Consider this: a mortgage program offers certain Americans a home loan with a zero down payment and no private mortgage insurance requirement. In addition, closing costs are limited and if the home is newly constructed, the builder must supply the buyer with a one-year home warranty.

Despite the obvious perks of the program, only 10.5 percent of the nation’s nearly 22 million veterans take advantage of this aspect of their Veterans Administration benefit offerings. When asked why, 33 percent of those who responded said they were completely unaware of the benefit, another group said that they went with the FHA loan because they assumed it was “easier” to obtain.

Obviously, the VA could be doing a better job informing (especially young) members of the military, veterans and surviving unmarried spouses about the VA loan and the mortgage industry could be doing a whole lot more to get the word out.  So, today we’ll take a look at the program and learn why it may just be the best loan product on the market.

Remember, we aren’t VA, mortgage or financial experts, so consult with the appropriate professional should you have any questions regarding the VA home loan program and its benefits.

The basics of the VA home loan program

Like the Federal Housing Administration (FHA) program, the U.S. Department of Veterans Affairs doesn’t actually make loans, but offers lenders a guaranty, if the veteran defaults on the loan. Should this happen, the VA will pay from 40 to 50 percent of the balance of the loan (the percentage depends on the size of the loan).

As you can imagine, this promise enables lenders to relax when faced with a borrower who may have little or less-than-perfect credit and a lower-than-average income.

So, what can you do with the VA home loan program?

  • Buy a home (a condo, too, if it’s in a VA-approved community)
  • Build a home
  • Simultaneously buy and rehab a home
  • Buy a lot and/or manufactured home

Is the VA loan harder to qualify for than the FHA loan?

No-one quite understands why so many current members of the military and veterans assume that the FHA loan is easier to obtain. Although there are additional steps you’ll need to take when pursuing a VA loan, they are quick and somewhat easy (if you have the right lender).

To qualify, you’ll need to say “yes” to at least one of the following questions:

  • Were you on active duty for at least 90 consecutive days during wartime?
  • Have you served at least 181 days of active duty during peacetime?
  • Have you served in the National Guard or Reserves for more than 6 years?
  • Are you a widower or widow of a military service member who died either in the line of duty or as the result of an active-duty service-related injury or disability?

The biggest advantages of the VA loan

As previously mentioned, the biggest advantage of the VA loan is that you won’t have to put any money down. Now any conventional or FHA-backed loan for which a borrower submits a less-than 20 percent down payment will require the purchase of mortgage insurance (the Mortgage Insurance Premium in the FHA loan and private mortgage insurance, or PMI, with a conventional loan).

These policies cover the lender in the event the borrower defaults on the loan.  This insurance, which benefits the lender should the borrower default on the loan, can add quite a chunk to your monthly mortgage payment. For instance, FHA’s annual mortgage insurance premium for a 30-year fixed-rate mortgage with 3.5 percent down payment is 0.85 percent annually.

The VA loan has no monthly mortgage insurance premiums, closing costs are limited and there is no prepayment penalty. With no monthly mortgage insurance premium, the veteran’s house payment each month will be less than if he or she had obtained an FHA loan.

The VA home loan process

Yes, there are a few more hoops to jump through when dealing with the VA. Eligibility requirements, however, are much like those for FHA and conventional loans:

  •  “Suitable credit.” The VA doesn’t really explain what they mean by “suitable.”
  • You should be able to prove that you have the income to cover all your bills and the house payment.
  • You must live in the home (you can’t rent it out).
  • You must present a VA Certificate of Eligibility (COE). Most VA-approved lenders can access your COE online or you can access your COE on the eBenefits page of the VA website.

The biggest hurdle for vets is that these loans are provided by lenders and they all have their own guidelines. Shop around until you find one that you feel you can work with.

 

 

Posted on November 8, 2016 at 2:36 PM
Will Thomas | Category: Uncategorized | Tagged , ,

More rent-controlled buildings are being demolished to make way for pricier housing

Rent control in L.A. primarily applies to multifamily buildings built before October 1978. When a new tenant moves in, a landlord can set the rent as high as someone is willing to pay, but rent increases in subsequent years would be capped — recently at 3%.

Tenants in rent-controlled buildings have strong protections against eviction to ensure landlords can’t kick them out to charge higher market rents.

But under the Ellis Act, passed in 1985, landlords are able to evict tenants if they intend to either take the housing off the rental market or demolish the building to put up new apartments.

http://www.latimes.com/local/california/la-me-apartments-demolished-20160402-story.html

Posted on October 25, 2016 at 1:23 AM
Will Thomas | Category: Uncategorized | Tagged ,