Planning retirement in the next five years? Looking to eventually downsize to a condo in the city?
If you answered “yes” to either of the above questions then you shouldn’t miss this free informative event on leveraging your IRA (Individual Retirement Account) by investing in today’s opportunistic real estate market, while also securing your future.
Did You Know?
- Your self-directed IRA can buy income property with before-tax dollars – rent it out and move into it when you retire
- Demand for rental housing in the city is skyrocketing – experts expect 25-30% increases in rent over the next five years
- The condo supply pipeline has been pinched, resulting in a dearth of new inventory until at least 2015 – the best selection and values are available now
- You can obtain financing on your IRA purchase securing today’s unprecedented low rates for the future while building positive cash flow in the interim
Presented by Realogics Sotheby’s International Realty, a panel of experts has been assembled to explore myths and facts with using IRA’s for income property, to discuss available financing options, and the review the overall housing marketing in downtown Seattle.
Here’s the details:
Finding a Way with Your IRA” – Investing in Today’s Condo Market for Tomorrow’s Retirement
Tuesday, June 28th, 2011 from 6:00pm – 8:30pm
The Hyatt at Olive 8 - 1635 8th Avenue - Downtown Seattle
Keynote Speaker – Tom Kelly, Syndicated Real Estate Columnist & Author
Self Directed IRA’s – David Nilssen, Guidant Financial
IRA Financing – Larry Enselman, Pacific Crest Savings Bank
Market Watch – Dean Jones, Realogics Sotheby’s International Realty
Admission is free
“We recognize there’s a growing opportunity for pre‐retirees to take advantage of today’s real estate opportunities by purchasing condominiums, renting them out with positive cash flow and then either holding them as an income property in their IRA or redeeming that asset as either a principal residence or second home in the future,” said Dean Jones, Principal of Realogics Sotheby’s International Realty. “The stars may be aligned downtown. We’re bringing in leading opinions to explore this investment strategy and welcome interested consumers and real estate brokers to view the interactive presentation and join the panel discussion.”
RSVP to 206.448.5752 or send an email to RSVP@RealogicsSothebysRealty.com
See you there!
There’s been much news lately that residential construction is roaring back! But is there too much going on too quickly—and will all these projects really materialize? And what is this telling us about the condominium market? Here are some of the latest projects in the pipeline:
311 Cedar St: The former Musician’s Building is now gone, with work underway on The Alto, a 17-story, 184-unit high-rise with 2,700 sq ft of retail space. The project is scheduled for completion in early 2012.
504 Terry Ave & 1106 East Jefferson St: The once-proposed Harbor Vista project from now-bankrupt Mastro Properties just got a new owner– an LLC out of San Francisco. Rumors are that the property will be developed into a residential/retail complex.
888 Western Ave: Goodman Real Estate’s original plans for an office building have changed to a 16-story residential building with 208 units with 9,907 sq ft of retail, plus 8,300 sq ft of recreation/public plaza space.
1430 Second Ave (Second & Pike): Urban Visions’ hotel and condominium plan have changed to a 440 foot, 35-story LEED-certified building of 290 apartments and 14,850 sq ft of retail and restaurant space, which includes a “Sky Bar” and restaurant overlooking Pike Place Market.
1623 Bellevue Ave: Proposed is a six-story building with 23 residential units and 1,000 sq ft of retail.
2116 Fourth Ave – located next to the Cinerama, the proposed tower will have 357 units, 2,700 sq ft of ground-level retail.
2625 Third Ave – The current site of the American Lung Association is slated to make way for a 19-story building with 204 units above 4,000 sq ft of retail space.
Second and Bell – Bell 206, a 122-unit apartment complex, is expected to break ground in January.
Eighth and Seneca – A recent financial deal has been reached to hang onto this site, where a twin tower project containing 280 units is in development.
Market Street and 14th Ave (Ballard): Replacing Sunset Bowl will be Avalon Ballard, a 271-unit apartment complex. Construction scheduled to begin in Summer 2011.
Market Street Landing (15th Ave NW and NW Market, Ballard): Equity Residential, an S&P 500 company specializing in apartments, condominiums and corporate housing, purchased the 1.4 acre site in October 2010.
5711 24th Ave NW, Ballard: Replacing the old Ballard Library will be Ballard West. Currently scheduled to start construction in the summer, it’s planned to have 107 apartments, three live-work units and 6,500 sq ft of retail.
200 – 106th Ave NE (Bellevue): Soma Towers is a proposed two-tower project – Tower One at 23 stories high with 142 units, and Tower Two at 17 stories high with 124 units.
With few construction events over the past several years, current vacancies are lower and rents are higher, making residential construction promising again. Recently reported was Dupre + Scott Apartment Advisors’ latest forecast that 2,500 units will open in the tri-county area in 2011, with an additional 14,600 units possibly opening between 2012 and 2015. This concurs with opinions recently reported from Apartment Insights. They predict a tight market from mid-2011 into 2012, bringing on significant rent increases.
However, just because start or completion dates are announced doesn’t mean they’ll actually happen. One of the items on our residential list first hit the presses in 2007. After inactivity since 2008, another project is now up and running, but still needs to apply for building permits. We listed a property which sources tell us is a go, but is currently stalled and looking shaky for a start anytime soon.
The glitch? Money. Lending institutions now require a project’s net operating income to be profitable based on current, not projected, rents. Plus, developers have to put up more of their own money. Before the recession, developers only needed to contribute 15 percent equity. Debt coverage ratios (net operating income divided by debt services) of 1.25 or better are now required. This pushes equity contributions to rates between 25 to 35, even up to 40 percent. A number of developers now need to seek equity partners – if they can find them. Equity partners were recession victims, too.
The Outlook for Condominium Development?
With current debt coverage ratios applying here as well, there’s nothing in the pipeline regarding new construction. But as apartment development explodes, we predict that if the condo market picks up as well, they’ll look at apartment buildings to fill demand. We’ve seen this pattern in the Seattle housing market before. Both Belltown Court and The Klee Lofts started out as apartment complexes. And, as condo demand increases, former condo projects which converted to apartments over the past couple of years may return to being condos again. We think one of the first to turn back may be Bellevue’s The Bravern, which announced that intent when they converted both towers from condos into apartments in 2010. Equinox and Rollin Street Flats were once condominiums, too.
However, the recession has made for reluctant homebuyers. What will the potential glut of rentals really do for the conversion market this time around? Will more potential buyers simply remain permanent renters? We think it’ll depend on what a buyer wants in the long run. Predictions are that a renter’s market won’t resurface until well after 2015, and maybe beyond if the conversion market takes off. In the meantime, rents should continue to rise and keep pace with the same costs it would take to own a home.
All indicators seem to point to the real estate market heating up again. With record-low home prices, plus interest rates the lowest they’ve been in 60 years, buying a home is not only more affordable but is also an investment that could pay off big over time. You don’t get that option with a rental. There is a lot to think about but if you’d like to discuss your options further, just contact us at our Stroupe Group link.
MarketWatch, part of The Wall Street Journal Digital Network, released its annual rankings of the best cities in the U.S. for business this week. Out of 102 major metro areas covered, guess which city climbed from No. 31 in 2009 to No. 10 in 2010?
MarketWatch uses a variety of measures to break down data into two categories: “Company Score,” the concentration of businesses within a metro area, and “Economic Score,” which takes into account unemployment, job growth, population growth, personal income and local gross domestic product. More metric categories were used in this year’s rankings, in part to better reflect tourism business and the economic impact of military bases.
Based on these calculations, Seattle’s No. 10 ranking had a total score of 932, with a Company Score of 501 and an Economic Score of 431. Ranked No. 1 is Washington, D.C., then Omaha; Boston; Des Moines, Iowa; Minneapolis; Denver; Richmond, Va.; New York City and Harrisburg, Pa. Other West Coast city rankings include San Francisco at 33, Portland at 52 and Los Angeles at 61. At the No. 102 position? Fresno.
What made the difference this year? Employment. Whereas Seattle’s sad showing in 2009 was due to poor statistics in job creation, its jobless rate dropped by a third of a percentage point to 8.7 percent in September 2010. MarketWatch also notes that Seattle did well in jobless comparisons between 2006 and 2010, and in keeping the percentages down over that period. It also hits the upper ranks in creating jobs relative to its population.
However, MarketWatch noted that Seattle is lacking in the number of major private companies. No businesses from Forbes Private Companies’ list reside in Seattle, and we are the largest U.S. city without one. But while the Seattle area may be amiss in that sector, it is home to a diverse selection of large S&P corporations such as amazon.com, Boeing, Costco, Microsoft, Nordstrom and Starbucks. Plum Creek, the largest publicly-held timber REIT in the country, is based in Seattle. And last week, The Fred Hutchinson Cancer Research Center announced its purchase of the 1100 Eastlake building, expanding its South Lake Union footprint to 15.2 acres.
Add a Pacific Rim gateway, the natural beauty of the Puget Sound area, plus a diverse culture, and we’re confident that Seattle will continue to remain high in “Best” rankings for years to come.(Photo by Marmaduke Percy, Wikimedia Commons)
We’ve been keeping in touch about the record-low interest rates of late… but if you’ve experienced some bumps in the road with bankruptcy or foreclosure, aka a “derogatory event”, you may not think you can take advantage of loan rates at this time.
What you may not realize is that while there are waiting periods for bankruptcy, foreclosures and such, an extenuating circumstance can cut your waiting periods for a new loan up to less than half the time. A job loss, major medical bills, or an accident serious enough to affect your earning power at the time of your derogatory event are all such instances. You’ll need to bring documentation proving financial difficulties beyond your control, but don’t you think you deserve a GOOD break for a change?
Below is a list of Derogatory Events and their waiting periods. See if these start some rethinking.
Bankruptcy – Chapter 7 or 11
Waiting Period: 4 years
with Extenuating Circumstances: 2 years
Bankruptcy – Chapter 13
Waiting Period: 2 years from discharge date or 4 years from dismissal date
with Extenuating Circumstances: 2 years from discharge date or 2 years from dismissal date
Multiple Bankruptcy Filings
Waiting Period: 5 years if you had more than one filing within the past 7 years
with Extenuating Circumstances: 3 years from the most recent discharge or dismissal date
Waiting Period: 7 years
with Extenuating Circumstances: 3 years but there are additional requirements from 3-7 years. You’ll need to have a 90% maximum Loan to Value (LTV) ratio; the purchase has to be a principal residence, and there is a limited cash-out refi on any type of occupancy.
Deed-in-Lieu of Foreclosure, Pre-Foreclosure or Short Sale
Waiting Period, 2 years – 80% maximum LTV ratios
Waiting Period, 4 years – 90% maximum LTV ratios
Waiting Period, 7 years – LTV ratios per the Eligibility Matrix
with Extenuating Circumstances: 2 years, 90% maximum LTV ratios
It’s a buyer’s market out there. Let’s see if we can help you get back into the game. Contact us at this link and let’s get you started!
NOTE: Please keep in mind that the maximum LTV ratios permitted are the lesser of the LTV ratios presented here, or the maximum LTV ratios for the transaction per the Eligibility Matrix. This information is based on rules and regulations issued by federal agencies, but please check with your bank or loan adviser to ensure you meet all requirements and disclosures.
So what was happening in April 1951, the last time that 30-year, fixed-rate mortgages were this low? Harry Truman was in office — 12 presidents ago! All in all, it took nearly 60 years for rock-bottom mortgage rates to come full circle, but here we are.
The Freddie Mac Primary Mortgage Market Survey reported the average rate for a 30-year, fixed-rate mortgage was 4.19% with an average 0.8 origination point for the week ending Oct. 14, down from last week’s average of 4.27%. A year ago the average was 4.92%. This is the lowest rate the survey has recorded since its inception in 1971. Mortgage rates were last at this level in April 1951, according to Freddie Mac.
Rates for 15-year, FRMs are falling steeply, setting a new low for Freddie Mac. The GSE said the rate was down to 3.62% with an average origination point of 0.8. The rate for a 15-year FRM was 4.37% a year earlier. Further, Freddie Mac commented that the September employment report held no big surprises to the financial market, allowing long-term bond yields and fixed mortgage rates to continue easing.
Bankrate reported the average rate for a 5-year, ARM fell last week to 3.62% from 3.64% previously. The one-year Treasury-indexed ARM averaged 3.43% with an average 0.7 point up slightly from 3.4%. At this time last year, the one-year ARM averaged 4.6%.
Coincidentally, Seattle-based Dupre + Scott Apartment Advisors’ latest report predicts that based on historic rents and incomes over the last 30 years, Puget Sound-area rents could climb almost 25 percent by 2015 and 50 percent by 2020. They also discovered that while rent rates fell during the last two recessions, it wasn’t by that much. AND, when the economy rebounded, so did rent rates. Add historically low interest rates to low apartment construction levels forecasted for 2011 and 2012 and we’re telling you, the time is ripe for buying! Contact us at this Stroupe Group link and let’s talk some more.
With the tightened requirements conventional mortgages bring, more people are turning to FHA loans. Qualifications are a little more lenient, and in most cases only require a minimum 3.5% down payment.
Here’s a list of condos and townhomes with FHA approval (as of 10/04/10). They are sorted by area and in order: Downtown, Belltown, Eastlake, Queen Anne, West Queen Anne, Capitol Hill, Ballard and Magnolia.
5th and Madison – 909 5th Ave
Bolero – 1323 Boren Ave
Cosmopolitan – 819 Virginia St
Decatur – 1105 Spring St
Escala – 1920 4th Ave
Florentine – 526 1st Ave S
Meridien – 1420 Terry Ave
Talisman – 1000 Union St
Waterfront Landings – 1900/1950/2000 Alaskan Way
Alexandria – 3028 Western Ave
Arbor Place Tower – 121 Vine St
Bellora – 2716 Elliot Ave
Ellington – 2801 1st Ave
Gallery Belltown – 2911 2nd Ave
Harbour Heights – 2621 2nd Ave
Klee – 2701 Western Ave
Market Court – 2030 Western Ave
Matae Belltown – 159 Denny Way
Montreaux – 425 Vine St
Mosler Lofts – 2720 3rd Ave
Parc-Belltown – 76 Cedar St
Royal Crest – 2100 3rd Ave
Seattle Heights – 2600 2nd Ave
Trio – 3104 Western Ave
Vine – 2607 Western Ave
1111 East John
535 Summit Ave E
Arcadian Court – 511 E Roy St
ArtHaus – 735 Federal Ave E
Bamberg – 416 E Roy St
Bellevue Place – 1000 Bellevue Pl E
Belmont Place – 721 Boylston Ave E
Brix – 530 Broadway E
Broadway Plaza – 116 E 11th Ave
Camellia Manor – 501 E Harrison St
Castlewood – 2717 Franklin Ave E
Chancery – 2328 10th Ave E
Consulate – 2320 10th Ave E
Corniche – 131 Bellevue Ave E
De Lorge – 325 Harvard Ave E
Eastlake – 3217 Eastlake Ave E
Embassy – 2350 10th Ave E
Fairfax – 1508 10th Ave E
Franklin Court – 2827 Franklin Ave E
Garden Court on Belmont – 232 Belmont Ave E
Glen Ray – 411 Boylston Ave E
Gleneagles Townhomes – 603 13th Ave E
Harbor Pointe – 2611 Eastlake Ave E
Highlander – 525 Belmont Ave E
Ives – 3121 Franklin Ave E
Jackson Court – 530 Melrose Ave E
La Pergola – 730 Bellevue Ave E
Lakeside Terrace – 2012 Eastlake Ave E
Lakeview – 1114 Lakeview Blvd E
Maison D’Or – 75 E Lynn St
Melrose East – 150 Melrose Ave E
Mode – 752 Bellevue Ave E
Nob Hill – 521 Summit Ave E
Park Lane Place – 400 Boylston Ave E
Park Summit – 211 Summit Ave E
Plaza Del Sol – 1711 E Olive Way
Roanoke Place – 2309 10th Ave
Ruby – 2960 Eastlake Ave E
Sahali – 400 Melrose Ave E
Seacrest – 2703 Boylston Ave E
Sentinel – 320 Melrose Ave E
Shannon – 601 Belmont Ave E
Summit Place – 435 Summit Ave E
Summit Tower – 900 Summit Ave E
Toltec – 630 13th Ave E
Union Harbor – 2301 Fairview Ave E
1234 Taylor – 1234 Taylor Ave N
160 Lee St
1629 Condominiums – 1629 Queen Anne Ave N
2001 Westlake – 2001 Westlake Ave N
Alterra – 1000 Aurora Ave
Ashbury – 18 Dravus St
Barclay Court – 701 1st Ave N
Borealis – 2628 4th Ave N
Citiscape – 1504 Aurora Ave N
City View Place – 1312 6th Ave N
Cornerstone of Queen Anne – 500 Aloha St
Courtyard at Queen Anne Square – 275 W Roy St
Essex House -1808 Bigelow Ave N
Hayes Court – 769 Hayes St
Highland House East – 564 Highland Dr
Kinnear Park – 410 W Roy St
Marselle – 699 John St
Mercer Place – 522 W Mercer Pl
Nautica – 701 Galer St
Queen Anne Park – 29 Etruria St
Queen’s Court – 124 Warren Ave N
Regency – 612 Prospect St
Renaissance on Queen Anne – 810 Taylor Ave N
Seaview/Seaview West – 519 W Roy St
Serana – 621 5th Ave N
Signature Place – 801 2nd Ave N
Skyline Place – 920 5th Ave N
Taylor – 1525 Taylor Ave N
Taylor Lee – 120 Taylor Ave N
Towne Terrace – 550 Aloha St
Union Bay – 762 Hayes St
Veer Lofts – 401 9th Ave N
Waverly Place – 2040 Waverly Pl
Willis – 720 Queen Anne Ave N
Wilson Court – 420 Valley St
WEST QUEEN ANNE
202 W Olympic Pl
2048 Condominium – 2048 13th Ave W
2811 Fourteenth Avenue West
Andiamo – 626 4th Ave W
Apollo – 330 W Olympic Pl
Bostonian – 1300 W Boston St
Canal Place – 965 Nickerson
Citadel – 2040 13th Ave W
Desiree – 3030 14th Ave W
Dravus Place – 3216 14th Ave W
Gilman’s Fairway – 2530 15th Ave W
Johnston Manor – 2552 14th Ave W
Kinnear Vista – 1001 2nd Ave W
Luxe – 500 5th Ave W
Newell Square – 3609 14th Ave W
Northern Lights – 1015 W Nickerson St
Olympic Plaza – 654 W Olympic Pl
Panorama West – 3622 14th Ave W
Pierre Marquis – 2253 Gilman Dr W
Queen Anne Condominiums – 2572 14th Ave W
Queen Anne II (or 02) – 3636 14th Ave W
Queen Anne North – 1324 W Emerson
Queen Anne Ocean View – 2244 13th Ave W
Shannon Place – 3646 14th Ave W
Tarmigan – 2219 14th Ave W
Urban Terrace – 3420 15th Ave W
Vikur Heim – 1001 W Howe St
West Howe Park – 1110 W Howe St
Westview Manor – 2625 13th Ave W
1111 East Pike
1515 E Union
16th Avenue – 102 16th Ave
1819 17th Avenue
21 Cherry – 21 Cherry St
Alpine Villa – 308 Summit Ave
Ambassador I – 505 E Denny Way
Ambassador II – 506 E Howell St
Belcourt Place – 1617 Summit Ave
Bungalow Court – 341 16th Ave
Central Park East – 2001 E Yesler Way
Courtyard on Capitol Hill – 1600-1625 15th Ave
East Madison Townhouse – 2593 E Madison St
Fir Street – 127 22nd Ave
Fleur De Lis – 1114 17th Ave
Fortune View – 1818 18th Ave E
Garden Court – 1631 16th Ave
Hill House – 1725 24th Ave
Ivory Coaste – 923 15th Ave
Madison View – 1820 24th Ave
Maison Jiselle – 120 14th Ave
Maison Ville – 1740 Melrose Ave
Manhattan Plaza – 701 17th Ave
Monique Lofts – 1024 Pike St
Onyx – 1125 E Olive St
Parc on Summit – 1616 Summit Ave
Pike Lofts – 303 E Pike St
Pine Street Cottages – 2116 E Pine
Portofino – 417 E Pine St
Seventeen07 – 1707 Boylston Ave
Squire Park Place – 1814 E Jefferson St
Trace North – 1412 12th Ave
Villa on Terrace – 1101 E Terrace St
Waterworks – 1828 11th Ave
6210 14th Avenue – 6210 14th Ave NW
Bal Harbour – 1743 NW 57th St
Ballard Arms – 1733 NW 59th St
Ballard Breeze – 1519 NW 59th St
Ballard Four Seasons – 1738 NW 58th St
Ballard Park II – 2433 NW 59th St
Ballard, The – 1525 NW 57th St
Danielle – 5803 24th Ave NW
Gilman Park – 1512 NW 57th St
Hjarta – 1530 NW Market St
Kalie Karin – 1707 NW 59th St
Kasteel – 5701 20th Ave NW
Linnea – 2600 NW 56th StBottom of Form
NoMa – 5650 24th Ave NW
Sunset at the Locks – 2413 & 2417 NW 59th St
Xavier – 804 NW 52nd St
Baywatch at Magnolia – 2200 Thorndyke Ave W
Blue Heron – 3150 W Government Way
Discovery Park – 3505 W Government Way
El Dorado IV – 3630 26th Pl W
Holly Terrace – 2550 Thorndyke Ave W
Magnolia Bay – 2310 Thorndyke Ave W
Magnolia View – 2562 Thorndyke Ave W
Quarterdeck – 3700 26th Pl W
Windy Hills – 3710 26th Pl W
As predicted (Interest Rates of 5% May Never Be Seen Again! Here’s Why.), the Federal Open Market Committee (FOMC) has confirmed that the program created to help repair economic recovery through the purchase of mortgage-backed securities will expire on March 31st. Intentionally designed to drive down rates, current economic conditions have improved enough to where the need for such low rates is “no longer warranted.”
This has brought up an industry-wide push to all those who have been on the sidelines waiting for bottom to take advantage before rates inevitably go up. However, rates are not expected to skyrocket. Assistant Secretary of the Treasury Michael Barr, was quoted in the Washington Post as saying, “I’m not going to say there will be no effect on rates, but it should be an orderly transition.”
Expectations are that once rates begin to rise, we’ll see more market activity from hesitant buyers. There are still a small number of buyers who believe it is possible for home prices and economic conditions to go even lower. Therefore, with only the option to either buy or continue hestitating, rising rates could be the evidence that the market needs.
Here are some highlights from the press release issued by the FOMC:
- Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth and tight credit.
- Business spending on equipment and software appears to be picking up, but structure investment is still contracting and employers remain reluctant to add to payrolls.
- Firms have brought inventory stocks into better alignment with sales.
- With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time.
Here’s an interesting bonus read: Higher Mortgage Rates Mean More Buyers
Interest rates are speculated to begin heading in the opposite direction come springtime. As part of the economic plan to stimulate the market, the Federal Reserve has been purchasing mortgage-backed securities in order to manipulate demand. Since early 2009, the Feds have bought an approximate $1.25 trillion in securities, and Fed spending is set to expire on March 31st. Unlike the Tax Credit extension real estate professionals crossed their fingers for, the Feds have already slowed down on spending, suggesting they will in fact cease securities purchasing. This should result in opening the market to investors demanding higher rates due to higher perceived risk. With that being the case, it’s likely that rates will never be seen at 5% again.
Lenders (preferred) are advising people to take advantage of these low rates before spring when they are expected to begin climbing to an estimated 5.5%. Spring is also the busiest season of the year for buying real estate, so getting in on a low rate and low price is certainly a wise idea. Rates should continue to rise at a fairly slow rate after that, then cap around 5.75%.
We’re a little late posting on this topic which seems to have been beat in the head since everyone caught wind of it, but we’re not sure that this “bad news” is really all that bad at all. It might also be fair to say that it’s not all that interesting either. We’d rather spend the time available to post an update on ENSO (coming soon). But, there were some questions we bounced back and forth between a couple of the lenders we regularly refer business to (btw, a good reliable lender can sometimes be like a pint of your favorite ice cream) and we had to get our facts straight.
If you have yet to be filled in, the government backed loan program (FHA), has become a resourceful option for first-time buyers, but the program is moving towards congressional tightening on standards with FHA applicants during an economic upswing–or even better known as a plateau. There’s certainly no doubt that the peak of the market during 2006/07 won’t be coming back anytime soon, but why ruin the party when people are finally starting to show up?
In a quick pre-summary, FHA is looking to make three major changes that could hinder the market’s momentum: increasing FICO score requirements, decreasing the allowable percentage of contributions a seller can provide to meet lending guidelines, and increasing the down payment minimum from 3.5% to a whopping 5%.
A lot of what’s attracting the attention to these changes is that standards will become tighter for mainly first-time buyers, yet FHA loans have become a popular and inexpensive option for those who are having a hard time coming up with a 20% down payment for a conventional loan. Although conventional loans will allow borrowers to go down to 5%, they require a buyer to pay for additional fees such at private mortgage insurance (PMI), as well as have a credit score of at least 740. That’s just for single-family homes. Condos are another story. Condos require a minimum of a 10% down payment in order to obtain PMI on a conventional loan. Therefore, FHA is the only option for buyers that cannot even come up with that initial 10% on a condominium.
Also, a seller can currently contribute to a buyer’s purchase through concessions of up to 6%, and many feel that bringing the newly proposed maximum to 3% will be more in line with common norms. However, what most industry professionals are most concerned about is the additional FICO score increase, which hasn’t had any positive influence with a lot of Americans over the last couple years. The requirement had already been raised recently, and FHA is looking at increasing the minimum down payment amount which could put a lot of potential buyers out of the game.
With the proposal of a new bill, the new guidelines would also raise minimum down payment to 5% as opposed to the current 3.5%. It’s important that the program survives and many feel that raising FHA standards could be detrimental. At the same time, the tax credit has certainly pulled a lot of first-time buyers over the fence, and now it’s time for those who sold to continue the stimulation by moving up. Regardless, if FHA doesn’t survive as a viable option for buyers that need help with getting their foot in the door, then there’s not really any other options out there at this time. The next generation of buyers are going to need to pull together more resources and put in a little more effort up front.
That said, it’s really not all that bad of news, compared to real estate-related headlines we’ve gotten used to. In fact, the spin would be that the market has been stimulated, there has been a positive track record of activity, and therefore it’s time to tighten the reins a bit. Of course, being in real estate sales, we’re always “for” programs and incentives that help us sell more product, but there’s not too much on this news to argue. Looking back, is it fair to say that maybe a big contribution to the financial crisis was due to too many loans given to too many people whose credit scores could have had a higher rating? Could it be argued that allowing a seller to assume responsibility on 6% of a loan ($18,000 on a downtown “starter”) for a product they’re selling is really just a creative way to sneak a buyer into a purchase they really can’t afford to begin with? And, is a minimum of 5% for a down payment really too high, or is 3.5% pretty darn low?
The homebuyer tax credit worked! It stimulated the market and people bought homes because of it. Brokers nationwide pushed for the extension at office meetings with their agents, and we’ve all since heard that it has in fact been extended until April 30th, 2010. Those who were not able to close on time for the previous expiration date are of course still eligible, but looking at sales, that’s only a small few over the last couple of months. Probably the most exciting news is that those who were over the income limit to qualify are now included in the stimulus for a credit of $6,500. In addition, the credit is being offered to current homeowners as long as their previous home was used as a principle residence consecutively for five of the previous eight years. Another modification making things easier for everyone is that a buyer must simply be “in contract” (mutual acceptance) by April 30th. After that, a buyer has until July 1st to actually close. Under the previous tax credit, there was a lot of confusion as to when various stages of the purchase and sale process where to occur. There was a lot of “‘had to do by” events that made it stressful for buyers, and even the sellers. Now it’s much more elementary and easier for everyone.
|First-time Buyer Credit||$8000 credit||$8000 credit|
|Current Homeowner Credit||Not eligible||$6500|
|Expiration (Must be in contract by…)||undefined||April 30th, 2010|
|Closing Date||Nov. 30th, 2009||July 1st, 2010|
|Income Limits||$75,000 (single)$150,000 (married)||$125,000 (single)$225,000 (married)|
|Limitation on Cost of Home||none||$800,000|